India to Boost Oil Refining Capacity by 2030, Says CRISIL Ratings

New Delhi, India – India’s oil marketing companies (OMCs) are planning to increase the country’s crude oil refining capacity by 35-40 million tonnes (MT) by the end of fiscal 2030, according to CRISIL Ratings. This expansion will bring the total installed capacity to 295 MT by 2030.

Reasons for Expansion

The expansion is driven by the projected growth in domestic oil consumption. India’s current refining capacity is already operating at optimal levels of 100-103% utilization. The expansion will require a capital expenditure of approximately Rs 1.9-2.2 lakh crore, with most of the capacity additions being brownfield expansions. These investments are expected to carry low project risk and provide steady returns, strengthening the credit profiles of OMCs.

Past and Future Growth

Over the past decade, India has increased its refining capacity by 42 MT, reaching 257 MT in fiscal 2024. Domestic consumption of petroleum products grew at a compound annual growth rate (CAGR) of 4% over the past decade. Anuj Sethi, Senior Director at CRISIL Ratings, expects overall petroleum product consumption to moderate to a 3% CAGR over the next six years due to slower growth in transport fuel consumption.

Impact of Alternative Fuels

The shift towards electric vehicles (EVs) and natural gas-powered buses is expected to reduce the demand for diesel. Diesel consumption is projected to grow at a more moderate pace of 2-2.5% CAGR over the next six years. Petrol consumption, driven mainly by two-wheelers, is also expected to face downward pressure. Electric two-wheeler sales are projected to reach 12-15% of the market share by fiscal 2030, and compressed natural gas (CNG) passenger vehicles are expected to capture 17-19% of the market by 2030. India’s target to achieve 20% ethanol blending with petrol by 2026 will further curb petrol demand.

Future Demand for Naphtha

Naphtha demand is expected to see a robust CAGR of 6-7%, supported by increased demand from planned petrochemical capacity additions in India. Joanne Gonsalves, Associate Director at CRISIL Ratings, stated that most of the capacity addition would be brownfield expansions, lowering project risks. The oil refiners have balanced their operating profits amid oil price volatility, earning USD 9-11 per barrel of rolling average returns between fiscals 2016-2024, with a return on investments of 12-14%. The sector benefits from its strategic importance to the government.