Indian Oil unit with Iranian investment plans $3 billion expansion

By Debjit Chakraborty

State-run Chennai Petroleum Corp., in which Iran has a stake, plans to spend about Rs 20,000 crore ($3 billion) for a nine-fold capacity boost at one of its refineries to quench the South Asian nation’s increasing thirst for fuel.

The unit of the nation’s biggest refiner, Indian Oil Corp., seeks to expand capacity at the Nagapattinam plant in the southern state of Tamil Nadu to as much as 180,000 barrels a day from the current 20,000 barrels, according to Gautam Roy, the managing director of Chennai Petroleum.

“We will complete studying the expansion plan by early next year and then seek approval from the board,” he said in an interview in New Delhi. “We have land available at the refinery site for expansion.”

Chennai Petroleum along with its parent Indian Oil, and peers such as Hindustan Petroleum Corp. and Bharat Petroleum Corp., are racing to add refining capacity amid rising fuel consumption that is expected to outstrip all other nations in the decades ahead.

India’s 23 plants have a total capacity of 230 million metric tons a year, while total fuel demand was 183.5 million tons during the financial year that ended March 31, according to the oil ministry.

India has formed a group comprising refiners and government officials to assess the nation’s primary energy requirement by 2040 and prepare a roadmap for expanding plants to meet the rising demand. Indian Oil will spend $6 billion to boost capacity by almost 30 percent in the next six years.

Demand Boost
Rising demand amid low oil prices has boosted earnings of Chennai Petroleum in the 12 months through March 31, after three straight years of losses. Profits from turning crude into petroleum products encourages investments in projects such as capacity expansion.

“The capacity expansion will help increase the availability of petroleum products in Tamil Nadu and other southern states,” Roy said.

Chennai Petroleum operates a bigger refinery at Manali near the city of Chennai, with capacity to process 10.5 million metric tons of crude annually, or about 210,000 barrels a day.

The company is already investing about $560 million at the Manali facility to build a delayed coker unit, a new crude oil pipeline and units for producing better quality fuels. Indian Oil owns 51.9 per cent of Chennai Petroleum, while Naftiran Intertrade Co., an affiliate of state-run National Iranian Oil Co., holds 15.4 per cent.