By James Buckley
India has the potential for growth, but the country is also fraught with potential difficulties.
Strategic location and low operating costs will make India a refining hub for the next fifty years, according to Daryl Pattison, president of Essar Oil's international supply and trading.
Pattison said India will benefit from being located on the delivery route of Middle East crude to the East Asian and Pacific Rim markets. This, along with new technology for refinery upgrades and grassroots capacity, will mean good business for the region between now and 2010, he said.
"The Asia Pacific region is going through a transitionary phase," said Pattison. "This has been brought about by the changing global order: lower than required capacity additions and capacity increases arriving as blocks."
According to Essar Oil, Indian demand growth is expected at 3.5-4% between 2007 and 2010, and 3-3.5% between 2010 and 2015. Demand will be driven by a robust demand for gasoline, gas oil, jet fuel and LPG. "We will have excess capacity in India for many years to come," added Pattison. "It will be a substantial refining hub for the next fifty years."
But Pattison criticised the Indian government for allowing a political agenda to bias decisions on domestic energy. He said the government is faced with the dilemma of delaying bold oil industry related decisions for fear of ramifications in general elections. He also said high prices may dampen domestic oil demand growth. Pattison expects a global refining surplus by 2010 and warns a reduction of duty protection to domestic refiners may dent the current healthy margins.
"The government-controlled petroleum product pricing structure is resulting in losses and under-recoveries," he said. "There are continuing subsidies on LPG..., growing crude oil dependency, progressively decreasing effective refinery protection and a vulnerable export market."