Refineries (Oil & Gas)

 

Overview

Being one of the largest industries in India, with a market Capitalization in August 2015 of INR 5,71,048 Crore, the refineries industry has many major players that govern the Indian refineries industry. With a total turnover of INR 1,393 lakh crores, Reliance Industries limited, Indian Oil Corporation, BPCL and HPCL hold major refineries in India among various other large and medium size players.

In 2014-15, the industry has seen sharp decrease in the prices of crude oil and with other factors like the volatile currencies of many countries and the slowdown in growth in some European countries; the energy businesses have certainly been severely affected.

 

Domestic Outlook

Looking into the economy, India has witnessed a turnaround of sorts, with growth estimates picking up, controlled inflationary pressures and a lower fiscal and current account deficit. With major investments being made by the corporate giant Reliance Industries limited, to the tune of $16 billion or INR 1,00,000 crores, which is the highest ever in India by a corporate in one year, the industry looks to have a potential as India still heavily is dependent on the Non- renewable sources of energy.

Reliance Industries, which owns the world’s biggest refinery at Jamnagar is a benchmark for the industry with its operational rate at 110% with an annual processing capacity being at 67.9 MMT of crude oil. With average global utilization rates being far lower at 80-87%, the company does have strong margins on its products. The total Oil and gas portfolio of Reliance, taking into considerations between the JVs and shares are:

 

Buy Industry Analysis

 
Outlook

India has launched several rural electrification programs, despite which, blackouts and discontinuous flow of electricity prevail. In India, where 46% of rural households have access to electricity, about 85% of the villages have an electricity line. The Power Grid Corporation of India monitors the inter-state transmission of electricity.

It is of utmost importance that superior customer experience has to be delivered by improved technology in this sector to maintain healthy margins and thus many companies in the public sector in this industry are observing very small margins, even losses in some cases. The domestic market has not yet realized the positive effects of the shale gas revolution of the North American refineries that will benefit them by significantly lower energy costs.

The other Major competitor in the domestic market, IndianOil Corporation and its subsidiary company, Chennai Petroleum Corporation Ltd., own and operate 10 of India’s 22 refineries. With an aggregate refining capacity of 65.7 MMTPA , it accounts for 30.54 percent of country’s refining capacity in 2014. With its refineries at Haldia, Barauni, Panipat, Mathura, Koyali, Guwahati and Madarihat, the company has presence in all parts of North, west and eastern India.

 

Global Outlook

With the OECD demand reducing by 0.5 MMBPD due to lower consumption in Europe and japan, Non- OECD demand grew by 1.1 MMBPD, sluggish Chinese demand and improved energy efficiency in non-OECD countries has led to a slowdown in overall growth in 2014-15. The sharp fall in crude oil prices have mainly aided importing nations and hurt exporting nations but due to the disposable incomes rising, the demand increased in the second half of 2014-15. Thus, the average oil demand has increased by 0.7 MMBPD to 92.5 MMBPD globally.

Due to heavy growth in most non-OPEC countries, the overall crude supply grew by 2.0 MMBPD in 2014, which was majorly driven by a surge in US oil production (+1.6MMBPD), Iraq (+0.25 MMBPD), Canada (+0.25 MMBPD) and Brazil (0.19 MMBPD). Combined with the stable supply from OPEC countries, the situation created an over-supply situation leading to the crisis of the crude oil prices falling by over 50% amidst geo-political tensions.

 

Future Potential

With major addition to the industry in terms of capacity by 2017 in the Asia- Pacific, Middle East and in Africa, the Indian refinery industry looks to tap the existing opportunities by high Capex and increased usage of higher-grade technology. As the industry is an oligopoly that faces high prices rigidity, the barriers to entry are very high. Government has taken a series of measures to ensure sustainability of the players by giving those companies accounting policies freedom to some extent and ensuring higher technological prowess especially in its public sector refineries like the IOCL and BPCL. Due to the demand supply gap in the economy, the industry is open to both international and domestic players, which is a major opportunity. However, the legal bottlenecks that arise in this industry in India are high and the government should introduce better measures for better ease of business in this sector.

 

What this report contains:

  • A detailed overview of the industry

  • Structure of the industry from both, domestic and international perspectives

  • Related industries that this industry has inter-dependencies with and their understanding

  • Detailed analysis of industry segments in terms of the value and depth of corresponding market

  • Analysis & insights about the elements and critical success factors of this industry using strategic models

  • A forecast on the state of this industry in 2020, predicting the growth and movement patterns for 2016 - 2020

  • Our professional analysis on the future of the industry based on strategic actions adopted by major industry participants

  • Quantitative estimates and forecasts of the growth prospects of the industry using revenue and financial forecasting models

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