Can Crude earn huge forex to India ? Yes

Can Crude earn huge forex to India

Japan is famous for its high-quality steel manufacturing despite being an iron-deficit nation. It imports iron and exports value-added items like ships and cars to create huge trade surpluses.

India could develop a similar situation with respect to another key commodity — crude. India imports about 75 per cent of its crude and currently has around 12-15 per cent surplus refining capacity, which is exported in the form of petrol, diesel, aviation fuel, etc.

Most of India's refiners are undertaking major capacity expansions and although crude imports will rise, domestic refining capacity will ascend much faster. By 2012-13, India could generate huge forex surpluses on the petroleum front. This has very interesting implications.

Some rough numbers. India imported 128 million tonnes of crude last year - about 75 per cent of total consumption - for a cost of $76 billion ($67 bn in 2007-08). Over 160 mt of crude was processed by Indian refineries (Reliance's new 29 mtpa facility came onstream only in mid-December 2008).

About 135 mt of throughput was consumed domestically. Products from about 25 mtpa of throughput was exported for revenues of $30 billion, up from $7 billion in 2004-05. Petro-exports contributed 17 per cent of all merchandise exports.

Domestic consumption will rise at 7-8 per cent compounded annual growth rate (CAGR) over the next five years. Domestic crude production will also rise. Once Cairn's new Rajasthan fields and Reliance's offshore KG assets are in full production. India will produce 55 mtpa, up from the current 45 mtpa. (About 1 lakh barrels per day = 5 mtpa). By 2012, Indian refining capacity should be 260-270 mtpa, up from a current 175 mtpa. Domestic demand will reach around 160 mtpa by then. About 100-110 mtpa of products could be exported.

Assocham did a study that suggested that by 2012-13 India's petro-product exports would fetch a surplus of about $70 bn over the import bill. The crude-product equation will clearly change to forex-surplus even if the estimates are optimistic