Worlds Apart? – The Sectoral Divergence in the Indian Petroleum Refining Industry

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Private sector refiners have in most cases higher refinery complexity and better product-mix (in terms of proportion of light and middle distillates) than the public sector refiners. Fuel oil, a negative-margin product is mostly produced by public sector refiners.

RIL refineries have no fuel oil in their productmix whereas EOL produced almost nil fuel oil in 2012-13. Better product-mixes have contributed to better gross refining margin (GRM) of private sector refiners vis-à-vis the public sector refiners (refer Figure 1).

Refining Margin – A Matter of What and Where

Refining margin of private sector refiners in most cases is much higher than that of public sector refiners (Figure 1).

This is due to better product slate of private sector refiners with higher proportion of high-margin light and middle distillates and lower proportion of low-margin heavy ends (particularly fuel oil). It is also because of their ability to process cheaper heavy and ultra-heavy crudes, better refinery complexity, energy optimization and advantage of scale economies.

Capacity of Public Refineries in India Below 10 MMTPA

Private sector refineries are less in number with larger capacities while public sector refineries are more in number with smaller capacities. Most of the public sector refineries are of capacity below 10 MMTPA, whereas all the three private sector refineries have capacity equal to or above 20 MMTPA (refer Table 2).

Therefore, private sector refiners are able to take advantage of scale economies, whereas public sector refiners lag behind in this respect.

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