The vast gas reserves in India's Krishna-Godavari (KG) basin unearthed by Reliance Industries (RIL), Gujarat State Petroleum Corporation (GSPC) and Oil and Natural Gas Corporation (ONGC) will reduce the domestic demand for naphtha and other petroleum products once the gas production start by year end. India's naphtha exports nearly reduced 50% YOY in July 2008 to 0.68 mln tons, while fuel oil exports have risen marginally to 0.56 mln tons during from 0.42 mln tons a year ago. The vast potential of a robust export market for these fuels remains to be explored. Increased exports of naphtha and fuel oil are unlikely to have a noteworthy impact on the margins of government-owned oil companies - as they sell these products in India at market prices. In the wake of the imminent shift in consumer buying, IOC has upgraded its refineries to produce more diesel and petrol and less of fuel oil at an investment outlay of Rs 4000 crores. Oil majors in India are also setting up petrochemical plants, which will use naphtha from the refineries as feedstock.
RIL is expected to initiate gas production from the basin by year end and will be mainly supplying to the fertilizer units. Currently, the fertilizer units and power plants consume naphtha and fuel oil due to deficit of gas supply in India which is set to vanish as the gas production from the gas rich basin is set underway. As a result, this has induced companies like Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) to arrange for increasing their exports of naphtha and other products as Reliance Industries (RIL) is slated to begin gas production from the KG basin by end of 2008.