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Thinking at the margins
A senior executive from Indian Oil Corporation Ltd (IndianOil) talked to Impact about the challenges facing his business and the project portfolio designed to maintain its competitiveness
Like many other refiners worldwide, India’s national oil company, IndianOil, was severely affected by the global economic downturn.
Its competitive landscape remains extremely challenging.
The principal challenge now is the squeeze on gross refining margins; these are under enormous stress because crude prices are on an upward trend but crack spreads (the
differential between the crude oil price and the price of the petroleum products extracted from it) are not.
Moreover, margins are not the only challenge.
The momentum in dieselisation has meant that IndianOil refineries have had to find ways to increase the amount of crude that they can convert into diesel.
In addition, India’s product specifications are becoming more stringent (specifications equivalent to Euro IV are being rolled out in 50 cities by 2015). Meanwhile, environmental regulations continue to tighten and outlets for the bottom of the barrel are shrinking.
When Impact asked Rajkumar Ghosh, Director of Refineries, IndianOil, about his strategy for maintaining competitiveness, he revealed that the organisation has embarked on an ambitious $10 billion growth plan for its 10 refineries, which aims to increase capacity, upgrade the bottom of the barrel and improve product quality.
The company is also planning several greenfield projects, including the new 15-million-tonnes-a-year refinery on India’s west coast that it announced in late 2012.
And then there are the mega-projects, which include a $6 billion greenfield refinery and petrochemical complex at Paradip.
This ultra-modern and highly complex facility will process 15 million tonnes a year of high-sulphur heavy crude oil into high-value products with zero residue.
But it is significant, Ghosh says, that the project portfolio includes a mixture of revamps, debottlenecking initiatives and greenfield ventures.
“The importance of revamping must never be underestimated,” he explains. “Refineries usually have a lot of untapped potential and it is important that we harness this.
“There is often a tendency to respond to situations with major investments.
However, revamps can often be the most economical solution.
Typically, a revamp costs $276 million for every million of tonnes of capacity installed, whereas the equivalent cost for a greenfield project is $368 million.
In addition, you also have to consider the gestation period.
What about the opportunities that you lose during the three to four years it takes to deliver a major project?
“This is why I always recommend first investigating the capabilities of the existing hardware.
Making sure you are getting the maximum return from it should be the first consideration, I believe,” Ghosh concludes.
Revamps can often be the most economical solution. Typically, a revamp costs $276 million for every million of tonnes of capacity installed, whereas the equivalent cost for a greenfield project is $368 million.
Ghosh cites the example of a debottlenecking exercise that increased the capacity of Panipat refinery by 25% to 15 million tonnes a year at the relatively low cost of $200 million.
Implementing state-of-the-art internals, for example, in the distillation column, the reactors and the fluidised catalytic cracking strippers played a part in this.
“Whatever the facility, we can usually find a way to squeeze more value from it,” he says.
He accepts, though, that there is a limit to how much a revamp can achieve for the business.
Once a plant has reached that limit, IndianOil always considers adding new facilities, such as Paradip.
Here, Shell Global Solutions has licensed its deep hydrodesulphurisation technology, which will enable the refinery to use low-quality feedstock components (light cycle oil) to produce diesel fuels that meet the stringent specifications that are on the horizon.
To help meet emissions legislation, Shell Global Solutions is also licensing its third-stage separator technology, which typically reduces flue gas particulate emissions from fluidised catalytic crackers to below 50 mg/Nm3, and CANSOLV® flue gas desulphurisation technology to recover sulphur dioxide from boiler flue gases.
But it is the possibility of unlocking additional value from existing assets that Ghosh is most passionate about.
He is always keen to explore whether anything can be done to enable an existing facility to operate safely beyond its original design levels.
The outcome of a research and development initiative between IndianOil’s technologists and Criterion Catalysts & Technologies was especially interesting.
Given the squeeze on margins and also the refiner’s need to maximise diesel yield, the two organisations co-operated to develop a new-generation catalyst.
Following a detailed programme of work involving laboratory analysis, scaling up trials and pilot plant tests, the new catalyst was installed in IndianOil’s hydroprocessing reactors.
IndianOil expects additional margin improvements to come from its plan to integrate most of its refineries with petrochemical complexes.
This can potentially enhance the economics at both sites because there are often optimisation opportunities across the refinery–petrochemicals interface.
For instance, streams such as hydrocracker residue can be sent from the refinery to the petrochemical complex’s steam cracker to make ethylene.
Ghosh says that a recent study has identified opportunities for improvement that are worth almost $0.9 per barrel across IndianOil’s assets, and the company is planning initiatives to enhance maintenance practices, improve energy management and enable its refineries to handle cheaper, but difficult to-process crudes.
IndianOil’s refineries are, therefore, pursuing growth on all fronts: through operational improvements and lowcost revamps, and by installing major facilities.
This approach aligns with the three-pronged strategy that Shell Global Solutions proposes when refiners are planning an investment: the multiplatform Shell Global Solutions Pentagon Model.
Reflecting on IndianOil’s array of projects and initiatives, Ghosh is extremely confident that the company will continue to enhance its competitiveness.
“We have a very strong project portfolio, but what is equally important is the quality of our people,” he says.
“Our people are extremely committed, and they have the internal desire to improve.
For instance, we set our individual refineries highly challenging targets for metrics such as margin, capacity, utilisation, distillate yield and fuel consumption.
And although these targets have been very steep, the refineries usually achieve them.
Furthermore, I believe there are still potential improvements in the system waiting to be uncovered.”
CANSOLV is a trademark of Cansolv Technologies Inc., a wholly owned subsidiary of Shell Global Solutions.
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