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India Could Cut Mega Refinery Oil Capacity As Costs Surge To $60B

India considers reducing the crude capacity of what would be its largest oil refinery as the country is trying to figure out how to cut swelling costs after strict environmental measures and snags in land acquisition inflated the overall costs to US$60 billion from US$44 billion, The Economic Times reported on Tuesday, citing top officials.

India, in partnership with the state oil companies of Saudi Arabia and the UAE plans to build a giant refinery in the state of Maharashtra on India’s west coast. In June last year, Saudi Aramco and the Abu Dhabi National Oil Company (ADNOC) signed a framework agreement and a memorandum of understanding with a consortium of Indian national oil companies to join the mega project. Saudi Aramco and ADNOC will jointly own 50 percent of the new joint venture company RRPCL, while the other 50 percent will be held by the Indian consortium. The parties agreed to explore a strategic partnership and co-investment in the development of the US$44 billion mega refinery.

By investing in the giant Indian refinery, the national oil companies of leading OPEC producers Saudi Arabia and the UAE would secure off-take for their crude in a strategic fast-growing oil market in Asia.

However, keeping with strict environmental regulations such as not producing petroleum coke and producing only fuels meeting stringent environmental norms would mean that the ‘best-in-class’ technology must be used at the refinery, which will cost more, an official told India’s The Economic Times.

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Costs may have also increased due to the delay in the land acquisition and the fact that the site had to be relocated.

In June the state of Maharashtra identified a new location for the refinery after the process of land acquisition at the previous site was put on hold late last year due to strong opposition from local farmers. Farmers had opposed the choice of site for the giant refinery because many of them depend on their land for their income and livelihoods.

The financing issue and the potential reduction of the refinery’s capacity would also depend on how much the Indian government and the Middle Eastern companies will be willing to overpay compared to the initial cost estimates.

The consortium has retained Engineers India Ltd (EIL) to draft a cost study expected by September, another official told The Economic Times.  

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By Tsvetana Paraskova for Oilprice.com

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