By R. Sasankan

India occupies a very significant perch in the world's oil and gas sector: it is the third largest importer of crude oil, the fourth largest buyer of LNG, and the second largest importer of LPG (cooking gas).

These should not be regarded as great badges of honour because they signify a very high level of dependence on energy imports. For a country that prides itself on being the fifth largest economy in the world - and aspires to become the third largest in the next five to six years - energy imports threatens to put a severe strain on its current account and will weigh heavily on its sovereign credit rating.

Domestic production of oil and gas from its own reserves has been falling consistently since the 1980s when almost 80 per cent of energy requirements were met through local sources. Today, more than 88 per cent of the country's crude oil needs are met through imports.

Some experts, however, make a big deal about the fact that India is now ranked as the largest exporter of petroleum products in Asia. They reckon that this is a major achievement which gives India a lot of heft in the global markets. The recent development is a fall-out of the war in Ukraine that threw up opportunities for private refiners in India. They were able to exploit a golden opportunity afforded by the import of cheap Russian crude by churning out petroleum products that were quickly exported to the West, especially Europe.

There is a growing perception among certain energy experts that India should focus on exports of petroleum products in a bigger way. But before it does this, India needs to ramp up its crude oil refining capacity. I am not particularly enamoured by this idea. A couple of genuine oil experts whom I consulted believe, like I do, that India should expand refining capacity only to such an extent where it is able to meet domestic demand.

India exported $86.2 billion in refined petroleum in 2022, which was more than 21% of the country's total commodity exports. The main destinations for India's refined petroleum exports were the Netherlands, the United Arab Emirates, the United States, Togo, and Singapore. India also exported petroleum gas worth $547 million in 2022 to Nepal, Burma, Oman, Bhutan, and Malaysia, which were the main recipients.

India's biggest export player in petroleum products is Reliance Industries Ltd (RIL). The state-owned companies, which dominate the refining sector, have generally stayed away from exports as a matter of policy though they too contributed to the recent export surge.

India's refining capacity today stands at 257 million tonnes per annum. The refining capacity in 2013 was 187 million tonnes, which is an increase by 70 million tonnes in 10 years. The government is aiming to create an additional refining capacity of 250 million tonnes in about 16-17 years.

The International Energy Agency estimates that India will add 1 million barrels a day of capacity over the six years to 2028, taking processing to 6.2 million barrels a day - a 19% increase to total refining. China is adding daily volumes but the overall capacity growth is just 8%. In the Middle East, it works out to around 9%.

 Europe became the top destination for India's export of petroleum products such as petrol and diesel from April to January 2024. In fact, it supplied $18.4 billion worth of these products last fiscal. This certainly is a big achievement. But here is my question: what will happen when Russian products re-enter the European market? If and when that happens, India may not have the advantage of obtaining discounted crude from the Kremlin as the economic sanctions against Russia would have disappeared by then.

I have covered the petroleum sector since the 1980s. On the basis of my understanding of the sector, I am sceptical about India's grandiose plans to expand petroleum refining capacity to levels that will more than cover its own needs.

Let us acknowledge the fact that India has no marginal advantage in refining crude as it imports about 88% of what it refines. All of the refinery capacity in India has been established on the back of huge incentives from the government, which have been funded by the taxpayers. Further export incentives add to private profits at the cost of the same tax payers! Lax environmental regulation and enforcement adds hidden costs to the export of refined products.

Finally, India does not have a reputation for being an efficient trans-shipment hub like Singapore. The tiny island nation succeeded in building a huge oil refining and petrochemical complex geared for exports by involving the top four global oil companies and a multiple petrochemical players.

Singapore was a key port of call on the crude shipment route of East Asia and did not involve double haulage over established sea routes. Further there were multiple historical reasons between the 1940s and 1980s that helped Singapore become Asia's largest exporter of refined oil till about two years ago. One must not also forget that Singapore has been able to steer its petrochemical complex to add value addition expertise to the more mundane business of oil refining which has helped it emerge as a major exporter of petrochemicals.

India's foray into oil product exports is misplaced, fraught with risks and has only enriched a couple of private exporters at the cost of the taxpayer. I have not yet come across a cogent argument that will convince me that India ought to become a big exporter of oil products.