INDIA'S new liberal economic policies, have triggered an industrial boom which is pumping up demand for petroleum products. The government is ending the state monopoly on the import and refining of oil, and exposing India's energy market to competition. Refining is open to private investors and licenses have been granted for new refineries to process 80 million tonnes of crude oil a year. Leading the rush are oil companies from the Gulf states which are determined to secure a long-term stake in this rapidly expanding market.

Several projects are making headway. Abu Dhabi National Oil Company has held preliminary discussions with India's Cochin Refineries (CRL) to set up a joint-venture oil refinery. The CRL already has a provisional agreement with Kuwait Petroleum Corporation (KPC) for a 10 million tonnes a year (t/y) refinery which awaits approval by the Ministry of Petroleum and Natural Gas in New Delhi. KPC is already working on the details of a second refinery with Indian Oil Corporation having signed a memorandum of understanding in September for a 6 million t/y refinery on the east coast of India.

Fluor Daniel is to prepare a detailed feasibility report.

Oman Oil Company (OOC). set up to promote energy investment overseas, was the first GCC oil venture to recognise the potential in India. OOC has completed detailed project reports for two 6 million t/y jointventure refineries, one with Bharat Petroleum Corporation and a second with Hindustan Petroleum Corporation, in the central and western regions of India respectively.

Gulf Crude

By investing in Indian refineries Gulf oil companies will become long-term suppliers of crude oil for refineries all over India. The KPC venture at Daitari in Orissa, on the east coast, will be designed to take at least 50 per cent of its crude oil intake from Kuwait.

OOC will supply crude from Oman to both of its joint venture refineries.

The Gulf investors have tended to take Indian public sector oil companies, which have long experience of processing Middle East grades at their existing refineries, as their partners in the new ventures.

This new wave of investment in refineries comes after a 13-year lull since the last grassroots refinery opened at Mathura in northern India. When it is commissioned in mid-1996 the 3 million t/y Mangalore refinery in southern India will become the first of the next generation of units to process Gulf crude which will be imported through a dedicated terminal at Mangalore port, being built by the refinery company Mangalore Refineries & Petrochemicals.

The Gulf investment in refining is a long- term undertaking as actual imports are still growing at a modest rate due to rising domestic production of crude oil. Indeed, oil imports may actually decline over the short term. With its current refining capacity of 56.4 million t/y India imported 27 million tonnes of crude during 1994-95, of which about 22 million tonnes came from the Middle East. Domestic crude oil production was 32.30 million tonnes during 1994-95 and continues to rise. Production is expected to reach 37.23 million tonnesduring 1995-96 and 44 million tonnes during 1996-97, the last year of the currentfive-year development plan. This increase in domestic supplies may reduce crude oil imports as refining capacity will only rise by 4 million tonnes by 1996-97.

Investors are looking beyond this period to the long-term potential. Any further rise in domestic oil output beyond 1997 is uncertain. There have been no major hydrocarbons discoveries in India for several years and the programme to attract private investment in exploration and development is proceeding at a snail's pace. With petroleum product sales rising by over 7 per cent a year, domestic crude production cannot keep pace with demand.

This is already apparent from the robust demand for diesel, kerosine, liquefied petroleum gas and other petroleum products from the Middle East. While the additions to India's refining capacity are awaited petroleum product purchases from the Middle East rose to 10.7 million tonnes in the financial year to March 1995, up from 7.45 million tonnes in the previous year.

Domestic refining capacity will only begin to cater for this growing demand after 1997 when more private sector refineries come on stream.

A committee of experts convened by the government to suggest reforms in the hydrocarbons sector estimates that facilities will have to be created to import about 77 million tonnes of crude and 34 million tonnes of petroleum products by the year 2001.

This assumes that domestic refining capacity will rise to 120 million tonnes and domestic crude production will be about 44 million tonnes by that time.

India is still importing much of its crude oil on yearly contract terms which it continues to favour despite the increasing global reliance on spot markets. This tradition of contract purchases has been kept up as a gesture of goodwill towards the Gulf states, but is likely to be eroded as the monopoly of state-owned Indian Oil Corporation gives way to the new private refineries.