The Growth and Potential of Petrochemicals in India
17 Oct 2018
The chemical industry plays a significant role in the global development of the country. It is a knowledge as well as capital intensive industry which employs a large number of people and covers more than 80,000 commercial products. The industry consists of small scale and large scale units. The government provides fiscal initiatives to the small and medium enterprises for their development and the large units are stable and well establishes in the country which have set up capital intensive projects. In the last five years, the industry has evolved at a rapid pace.
With a large pool available in the country, the industry has focused the investments on research and development. Petrochemical industry is a very important industry for the country and contributes substantially for the growth of the economy. Petrochemicals are chemical products that are derived from petroleum and the most common of them are aromatics and olefins. The growth of the petrochemical industry is directly linked to the economic growth of the country and is considered as an enabler for the growth of other sectors as well. Petrochemicals form the entire spectrum of items that are used on a daily basis. These include clothing, construction, housing, irrigation, medical appliances, packaging and much more.
Petrochemicals are derived from chemical compounds known as hydrocarbons which are derived from natural gas and crude oil. The main feed stocks for petrochemicals industry are petroleum gases, kerosene, gas oil and naphtha. Other important feedstocks of the industry are ethane, pro-pane, natural gas liquid and butane. The major segments of petrochemicals are vBasic petro-chemicals and vEnd product petrochemicals. The feedstock is used to derive the basic petrochemicals which are reclassified as olefins and aromatics. They are used to produce end product petrochemicals.
The Indian petrochemicals market has grown by a CAGR of 11% in the last five years. The con-tribution to the global market size is not substantial because of the low per capita consumption of polymers in the country. India consumes only 9.7 kgs of polymer as compared to the world average of 25 kgs.
Indian petrochemical sector is heavily dependent on the exports which has made it strongly cor-related with the global markets. It is expected that the global demand for ethylene will grow at the rate of 6% and that of propylene will grow at the rate of 5.5%. Propylene
and ethylene will have a huge share in the total demand of petrochemicals. India is becoming a refining and petrochemicals surplus nation and the Government has taken away the income tax holidays from the industry.
The biggest challenges that the industry faces is the volatility in raw material prices. Most of the capacities are based on naphtha which is a crude oil derived product. The prices of the products has increasing significantly and there is also an increased competition in the market. In Middle East, there are large capacity additions which are taking place and it is an advantage to the petrochemical sector. Out of the total tons of ethylene capacity additions expected in the coming years, most is expected from the United States alone. Ethane and shale gas based petrochemical products are cheaper than any other petrochemical products in the country, the domestic roducers are expected to witness huge pressure on the margin.
It will become difficult for new entrants to make a mark in the industry due to the capital intensive nature of the plant and tariff barriers. Due to an oversupply, the prices of petrochemicals have taken a steep decline which has forced the domestic companies to underutilized their plant operating levels.
Crude oil prices are highly volatile and India is heavily dependent on the oil imports. Hence, there is an opportunity for oil and oil related companies to reap benefits of increase in their presence across the chain. Further, the availability of feedstock dictates the location of the plant. One method of improving the competitiveness is by improving the infrastructure support like China and Singapore have done in the past. Also, as natural gas becomes easily available in India, the domestic players will soon shift from naphtha to cheaper natural gases thus increasing their competitiveness in the industry.
Due to the capital intensive nature of the projects and the high cost associated with the same, the domestic companies might look outside for organic as well as inorganic opportunities. A lot of companies are increasing their presence in countries like Kuwait, Saudi Arabia, Qatar which are energy rich countries.
The demand for petrochemicals will grow at a CAGR of 10% in the coming years. The market might be oversupplied to the tune of 0.9 mmtpa. The demand and growth will be driven by olefins segment which include propylene, ethylene and butadiene. The petrochemical sector in the country is a key pillar of the economy and is also one of the fastest growing with a demand of more than 8% in the past five years.
The sector is a key input for a range of substances the include solvents, plastics, pharma ceuticals and fertilizers. These factors
have driven the industry forward and given a strong GDP growth while making the most of government initiatives. The per capital consumption still stands very low as compared to the global demand and growth. Only if the domestic potential is maximized, the sector can achieve strong growth. The industry has the potential to reach $70 billion by 2030. This also means that investments of $40-60 billion are required which will be an opportunity to create 25 lakh new jobs across the value chain.
India can start by emulating global suc cess. India should consider key success factors like robust ecosystem, regulations and incentives, high quality infrastructure and investor friendly policies that have enabled the country to achieve success in the global industry. In India, RIL and IOCL have presence across different cities and have established refineries in the same. India needs to expedite petrochemicals park implementation by creating world class production facilities which have efficiency and scale. Further,the country needs to focus on research and development. There should be substantial investment to support the development of key technologies like ecofriendly products and catalysts that are used across auto, electronics and medical equipment.
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