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Indian Petroleum Industry
Professor M C Dwivedi Former Professor, Indian Institute of Technology, Mumbai It appears we are through the best global supply period for petroleum and consequently derivative products and services. A number of sources suggest that the world oil production is falling short of demand by 4-5 million barrels per day. It is widely accepted that the crude oil production has reached “Undulating Plateau” at about 82 mbpd and will resist around this till 2020 before turning to an irreversible decline, while the demand will keep rising at the rate of two to three per cent. The widening gap of oil demand and supply will be filled up by non-conventional resources like, gas, oil shale, oil sands etc. and finally by coal.

Pressure on oil supply is reflected by rising prices of oil, and increasing use of natural gas for transport and domestic fuel, power generation, fertilisers and chemicals etc. Heavy, high sulfur and low-grade crude oils, which were unsalable in 1970s, are now being accepted for refining, by adopting changed refinery process configurations. Refiners aim to reduce ‘bottom of barrel’ to about 10 per cent by converting heavy ends to fuels. Greater attention is being given to unconventional resources, like coal bed methane, oil shale and oil sand processing etc. Extensive research studies are being done in developing nations like USA, China and Europe, on age old processes of conversion of gas, coal and biomass to liquid fuels by pyrolysis or partial oxidation or gasification.

The next 50 years are going to be dynamic period when the transition from “Petroleum era” to “Coal era” shall take place. Transition will be through a short ‘Gas era’ when the gas may occupy upto 30 per cent of the total ‘fuel and energy’ basket. This transition of fuel and energy resources will trigger a shift of industry to new advantageous locations. In India it is going to be from western region that is accessible to oil imports to eastern and northeastern region that will be better placed for production as well as import of coal. Such an industrial shift took place from eastern part to western part during 1940 – 1960. Another resource-oriented shift is not a surprise.

In last 30 yrs the oil demand has been mainly driven by automobile industry due to phenomenal increase in automobile production and demand in rising economies of Asia, creating demand for automobile fuels, gasoline and diesel. This resulted in major charges in refinery process configuration, to convert heavy ends to light products by ‘coking’ followed by product upgradation processes like hydrogenation hydroisomerisation, alkylation etc. This reduced refinery heavy ends to around 10 per cent from 30 per cent. Heavy and low-grade crude oils became acceptable for refining. A major impact of this change was elimination of lubricant base oil and consequent to that wax production, from refinery, leading to shortage of base oils and waxes.

Environmental requirements seriously influenced refinery process configuration. While average sulfur content of the crude oil increased, sulfur content of fuels has been reduced to lower figures like 5 ppm to qualify exhaust emission norms. Therefore in last few decades major refinery investments were on desulfurisation processes. Solvent extraction processes have been eliminated due to restrictions in discharge of solvents like phenols in effluent streams beside high cost of solvent.

In last 50 years Indian Petroleum Industry has been influenced by the above parameters. In addition there were often non-conducive policies and restrictive practices of central and state governments, high taxation and rampant corruption. In 1960s the industry was “Textile Driven” most of chemical production was for textile industry, often owned by textile groups. In 1960s Government and a number of private players entered the refining, fertiliser and petrochemical industries. The growth in 1970s was phenomenal and widespread. Large number of small-scale manufacturers emerged all over the country due to availability of basic raw materials and emerging market for plastics, detergents, fibers and consumer goods. Every state established dedicated chemical zones in Industrial Estates. In medium and large-scale sector, there were a number of manufactures, in petrochemicals, fibers, detergents and specialties, both local as well as multinationals. There were serious restrictions in growth because of prevailing industrial policy and regulations. Often manufactures were forced to operate units below the viable economical capacities from international standards. It was going nice in a protected market. Focus was on local market and demand. Demand projections were made by government. departments based on paralysed notions and bad data and projections. A number of these rigid naughts were relaxed in 1970s and a number of large plants in private and public sector came up. Small and medium sector also flourished as feedstocks and intermediates were available locally. This was probably the best and most innovative period for Indian chemical industry, particularly the small and medium sector. A number of indigenous R&D based small and medium sector companies came up producing a wide variety of products; pharmaceuticals, dyes and intermediates, pesticides, alcohols, silicons, plasticisers synthetic fibers, rubber etc. A number of multinationals also entered or expanded operations in growing Indian market through 1980s.

1990s economic liberalisation policy followed by opening up the markets due to GATT-WTO culminated into major changes in the basic structure of chemical industry. Some of the large companies become larger by capacity addition, takeovers and buyouts. In petrochemical, synthetic fibers, polymers detergent, chloralkali, soda ash etc. Number of manufactures reduced to just a few from the earlier figure of 10-20s. The new entities had large capacities to be competitive in international market. This created monopolies not so favorable to local consumers. Medium and small chemical manufacturers, which had grown in a protected market, could not face these and internal international challenges, due to low manufacturing capacities, weaker economic base, and poor innovative inputs. State run chemical zones generally had poor infrastructure and no pollutant effluent discharge and processing facilities. This placed these industries at odds with the state run environmental departments. Perpetual harassment by 40 plus govt. inspectors, local police, civic officials and local politicians made these small units difficult to survive. GATT-WTO brought flood of Chinese materials, often below raw material cost. This resulted into closer thousand of small and medium units. In most cases manufactures turned to repacking and marketing of Chinese materials, rendering lakhs of workers and technical manpower jobless. In Navi Mumbai-Taloja chemical zone more than 3000 small chemical units closed down, throwing more than one lakhs workers jobless. A number of chemical zones looked like graveyards of factories. In some of these places, glass front buildings have now come up housing BPOs and other softer service jobs. Post 1990 WTO regime has benefited large-scale sector, adding internationally competitive capacities, creating landmarks in refining, petrochemicals and other sectors. Net tonnage production has registered impressive growth and largest ever production capacities. Medium and small sector has severely suffered, resulting into drastic reduction in number of products and manufacturing units. Financial benefits have gone to few, while large numbers remained deprived. In a hurry to pump into ‘reforms’ government. of that time did not do home work keeping small and medium sector in view, which was manufacturing a vast array of chemicals and providing employment to millions of people. Liberalisation should have been gradual and programmed. This would have saved lakhs of these units and helped these to grow into a formidable manufacturing force.

Education and R&D is another area of concern as innovativeness and future growth is closely linked to it. After 1980s there has been a serious imbalance in engineering and science education. Because of salary differential, quality of life, and growth opportunities, in softer jobs like IT, marketing. management, finance etc most of the engineering and science graduates (bright or not so bright) have gone to nonfactory jobs. Manufacturing units cannot match these salaries. Work environment is tough and rewards are poor. Manufacture ring units particularly those in small sector have no engineers and somehow manage with ill trained and ill educated work force. This may somehow maintain the routine production but cannot lead to innovations and growth.

Due to commercialisation of education number of graduates passing out has phenomenally increased, however, education standards and professional course contents are seriously eroded. Students moral towards the professional subjects is low as they aspire to do a management course or IT job, irrespective of discipline of graduation. The education practically reduces to learn use of software without learning the fundamentals. As such not many graduates wish to go to factory or profession. Chances of those going to education and research are remote. There is hardly any link between education, R&D and industry. Most of the work being done at education institutions and R&D institution appears to be academic, with no objective or relevance to the needs of industry. In-house R&D in industries is also practically non-existent. Management philosophy appears to be that it is more sensible to buy technology, designs and innovations rather than to develop these. Thus, inspite of quantitative growth, technology knowledge remains far behind the front edge. In all, our education, employment policies, and R&D are not conducive to innovation and future growth. We shall continue to buy technologies as we have done all these years. In future it appears that USA, Germany, Japan, South Korea and some European countries will continue to lead in technology because of huge base, created over a century. China is likely to emerge as new technology leader due to massive investment in purposeful education and research in last few decades. Our purposeless education and superficial research cannot lead to innovations and technology development.

In last 30 years, development in computer science and over inclination for IT and services, has created a whole generation of ill educated engineers and technologists, weak in fundamentals and hard-core technological disciplines. Such manpower is incapable of innovations and development of leading technologies. A drastic overhaul of the entire technical education and R&D system is to be done. Salaries and work conditions to retain the best minds. In present form Indian scene is not so promising.

A number of impressive milestones have been achieved by Indian, petroleum refining petrochemicals, synthetic fibers, polymers, detergents, soda ash and a number of other manufacturing and processing industries. There has been phenomenal growth in automobile industry, and power sector. This has increased consumption of petroleum products and fuels (currently about 100 mt p a ) . With refining capacity touching 150 mtpa and domestic oil production stagnant around 35 mtpa, India emerged as the third largest importer of oil, next to USA and China. This is the major area of concern for the oil driven growth and economy of this country. Oil exploration in the country is not so successful. After Bombay High and South Gujarat, there has been no major discovery for the last three decades except small oil and gas discovery in Andhra coast and a medium oil field in Rajasthan. The older oil fields are getting depleted. Production capacity of ONGC and OIL, which was about 36 mtpa in 1980s, has fallen down to about 24 mtpa.

The current oil production including that of Rajasthan oil field is about 35 mtpa. This leaves a shortage of 135 mtpa crude oil to be imported. With the projected addition of about 20 mtpa in refining capacity and increasing demand for transport fuel, shortage is likely to rise to about 150 mtpa by 2015. To assure this critical supply Chinese and Indian companies have been bidding all over the globe for hydrocarbon resources, oil and gas, shale, oil sands. Coal and lignite etc. to create some cushion or “oil security”. Fuel power and steel companies are also biding to acquaire coal blocks and coal bed methane resources. Small shift towards gas usages is clear.

E1A, AEO 2009, predicts that in 2012 the world oil supply plateau will start tapering down and total supply of liquid fuels from all conventional and unconventional sources will fall short of demand by about 5 million barrels per day or about 350 million tons per year. This short fall is likely to widen in future, as less and less liquid fuel will be available from the existing conventional and non- conventional sources. Shortage is estimated to be about 600mtpa (9 per cent of demand) in 2015, 2300 mtpa (33 per cent) in 2020 and 5300 mtpa (69 per cent) in 1930. How this gap in demand and supply is to be bridged is major concern. Exploration and discoveries from yet unexplored areas of the earth, may provide some cushion, gas, shale, oil sands etc. are more expensive and minor resources and may help only in the transition period as we shift from petroleum to the next major resource ‘coal’ Transition will be gradual spread over 30 to 40 years when liquid fuels from coal will become major source.

Continuous rise in oil price is obvious as liquid fuels from other sources will be more expensive than those from petroleum. Price rise of fuel will generate all round inflationary pressure in a transport driven economy. High price may sometimes retard the growth rate thereby flattening the demand. These may be unpleasant but healthy corrections to narrow the gap between demand and supply.

What are technology options available as we move from ‘oil era’ to ‘coal era’; Liquid to Liquid (LTL) to Solid to Liquid (STL). Prior to 1930s coal was major source of energy and processes were developed to produce liquid fuels from coal. These were used in Germany during the Second World War, and in South Africa during economic sanctions till 1994. Recently a number of Gases to Liquid (GTL) units have been operated on semi commercial and experimental basis. Common theme of GTL or STL processes is to produce synthesis gas (CO+H2) and then convert it to hydrocarbon liquids or other oxygenated liquids by Fischer- Trophs (FT) reactions. Variation of process parameters; CO/H2 ratio, catalyst, pressure, temperature, space velocity etc, can give a wide range hydrocarbon fuels, lubricants, waxes, and oxygenated product, like alcohols etc. These are largely linear paraffinic structures. Requirements for these products and a host of other chemicals are likely to be met by such FT based processes. High-pressure coal hydrogenation process (Burgeons Process) was also used in Germany during WW-2. However, high pressure, and hydrogen generation increased the cost and process did not find much favour later.

Classical processes, of partial oxidation or gasification with or without steam have also been explored for generation of synthesis gas. Other processes using pyrolysis with or without of steam or hydrogen are also are known and are being explored.

As a result a number of processes to produce liquid fuels from coal, lignite etc are being offered. Most of these processes can take gas as feedstock in GTL mode as well as solid feedstocks in STL operations.

These also have potential to use biomass, industrial and domestic waste etc for production of liquid fuels. The picture of industry that is likely to emerge by 2040 is that 60-70 per cent liquid fuel requirements will have to be derived from coal and other solid feedstocks. In order to minimise ‘transport’ process plants producing crude hydrocarbon mixtures will have to be located at the coalmine head. Large power plants will also be established to utilise large quantities of thermal energy generated by these units.

Refineries to produce liquid fuels may also be integrated or the crude hydrocarbon may be transpor ted by pipelines to existing refineries. The ash (more than 30 per cent) produced in this process may be used for mine filling or in some cases for cement production. It is clear that by middle of century major industrial and production activity will be gradually shifting to coal producing areas; Assam, Bengal, Bihar, Chhattisgarh, Jharkhand, western MP, eastern Maharashtra and nor th Andhra Pradesh, from now dominating, coastal areas. Serious environmental problems are associated with such developments. Technology solutions will have be found for these.

An obvious off shoot of these STL Based fuel and energy sources will be development of small and medium scale units to conver t municipal and industrial organic waste to liquid fuels and energy. Such units may emerge at big cities where large quantities of municipal and industrial waste or in rural areas where quantities of agricultural or forest waste is likely to be available.

By 2050, about 10 perc ent of total fuel demand will be met by these small local producers. One of the major advantages is that the products are all locally consumed avoiding long distance transportation as with large refineries. This will be a gainful solution of the civic waste disposal problems and those associated with the land filling for waste disposal.

Such small capacity units will use technologies based on partial oxidation gasification etc. with or without steam to make CO or CO+H2 that may be converted to liquid fuels by F.T reactions. Another way is to pyrolise the organic solid waste and collect pyrolysis products, which are highly unsaturated and cyclic. These could be up graded by hydrogenation, alkylation and polymerisation processes. Major issue may be to handles phenols and pyrolignous acids formed in the pyrolysis of wood, cellulose, and other biomaterials. Technical solutions leading to profitable recovery of these materials are known and may be developed.

Picture of industry that is likely to emerge after 50 years is vastly different. Industrial and developmental activities will shift from western India to eastern and central parts. The major Middle East sources from where oil is mostly imported will get depleted.

Import of coal in eastern coast will be cheaper than that in the western coast as major sources of coal will be Indonesia and Australia. It is not surprising; industrial activity shifted from east to west in 1940-1960, shift of textile industry has taken place 1975-85, based on raw material availability, market, and logistics. Similar changes will be taking place in chemical industry in next few decades.