Manufacturing hub dream adds to India's growing thirst for naphtha

India's insatiable appetite for naphtha, which witnessed the sharpest growth among all oil products in 2015, is set to increase further in the coming years as the country's push to become a manufacturing hub hikes domestic demand, which in turn is expected to gradually cut exports, according to analysts and refinery officials, as per Platts. Even as naphtha demand as a gasoline blendstock and for the petrochemicals sector is expected to show double-digit growth over the next few years, that from the fertilizer sector will also continue to rise though at a relatively lower rate, they said. "India's naphtha demand has seen strong growth and this is expected to continue in 2016. Underlying petrochemicals demand remains strong due to strong economic growth and we don't expect this to change in the near future," said Tushar Bansal, head of oil, East of Suez, at Facts Global Energy. Domestic naphtha consumption, which accounted for about 7% of India's overall oil products demand, surged more than 18% year on year in 2015 to 12.96 mln mt, from 10.97 mln mt in 2014, surpassing the growth rate of nearly 15% seen for gasoline, data from the Petroleum Planning and Analysis Cell showed. Surging domestic demand cut India's naphtha exports, which accounted for about 11% of the overall oil product exports in 2015, by nearly 5% to 7.04 mln mt from 7.4 mln mt in the previous year, a trend analysts and refinery officials said was likely to continue. "I see India exporting less naphtha over the next few years," a senior refinery official in charge of petrochemicals at a leading state-owned refinery said. "With the rapid urbanization that's happening, demand for plastics, rubber and other products is set to surge." Analysts said that the push by the BJP-led government to promote India as a manufacturing base will also drive naphtha demand to grow at a faster rate than seen in recent years. "As manufacturing demand grows, so will the demand for plastics, and naphtha is best placed to benefit from this, particularly given the focus on the 'Make in India' campaign," the Oxford Institute for Energy Studies said in a recent study. "New [steam] crackers have started up or are expected to startup soon and bulk of their feedstock is naphtha," Bansal said. Mangalore Refinery and Petrochemicals Limited recently launched its long-delayed aromatics plant. Brahmaputra Cracker & Polymer Ltd. has begun commissioning of the first phase of its long-awaited integrated petrochemical complex in Assam. Reliance Industries Ltd.'s Jamnagar complex is expected to begin operations in the next few years. The long-delayed 1.1 mln mt/year OPAL naphtha cracker in Gujarat is also inching toward completion and will likely start using naphtha feedstock in 2016. State-owned Indian Oil Corporation is expected to expand its Panipat naphtha cracker to 1.2 mln mt/year by 2019, from 0.85 mln mt/year currently. "Over the next five years, the capacity expansion projects announced by all major Indian petrochemical companies will lead to a reversal of balances, with excess naphtha supplies falling sharply," the Oxford study added. According to another study by McKinsey & Company, India could potentially consume an additional 20 -25 mln mt of petrochemical intermediates annually by 2025 as industrial demand rises. "The announced additions to capacity addresses only a fraction of that demand. That missing link will pose important questions -- and present new opportunities -- for the chemicals industry," McKinsey said. Naphtha demand has also risen because of increased appetite for use as a gasoline blendstock. "With gasoline demand in India growing by leaps and bounds, demand for naphtha is also set to grow," the refinery official said. Domestic gasoline consumption rose by nearly 15% in 2015 to 21.09 mln mt, from 18.38 mln mt in 2014, the second highest growth rate among oil products after naphtha. "At the same time, further growth is expected later this decade due to reformer demand to produce high-octane components in line with the move to implement Euro 6 specification fuel from April 1, 2020," Bansal said. Transport minister Nitin Gadkari said in January that the government had decided that India would jump from Bharat Stage IV fuels -- the equivalent of Euro 4 -- directly to Bharat Stage VI by 2020, skipping one upgrade in between, to battle growing pollution. In 2015, when natural gas availability was squeezed, the government allowed urea producers in the southern states to use up to 1.2 mln mt of naphtha to make urea. That also helped to boost naphtha consumption. Analysts and refinery officials said that volume was expected to remain more or less steady this year. The three fertilizer plants that were given the green signal to use naphtha as feedstock were Mangalore Chemicals and Fertilizers Ltd. in Karnataka, and Madras Fertilizers Limited and Southern Petrochemicals Industries Ltd. in Tamil Nadu. "Until enough gas becomes available, fertilizer plants will have to continue using naphtha as a feedstock to produce urea," Satish Chander, director general of the Fertilizer Association of India, said.