HPCL may be hit by short-term non-availability of Russian oil but sees no shortfall in oil supply

HPCL has plans to increase the capacity of its existing refineries instead of venturing into setting up new plants.

Hindustan Petroleum Corporation Limited (HPCL) would be hit by the short-term non-availability of Russian crude oil but sees no challenges in terms of oil availability in the market, chairman Rajneesh Narang told Moneycontrol.

HPCL has tied up with suppliers for its crude requirements for the next three months, highlighting that the market faces no shortfall of oil supply, said Narang.

“We have tied up our crude requirement for March, April and May. So, it's not that the crude is not available. There is sufficient crude available in the market. Yes, in terms of economics, it will definitely mean some changes for us regarding the non-processing of Russian crude. But (Russian oil) flows will stabilise. Nothing stops us also from purchasing from non-sanctioned entities. We will have to wait and watch as to how it unfolds. We will also not take it (Russian oil) from a sanctioned party,” added Narang.

The state-run oil marketing company used to procure around 35-40 percent of its total requirements from Russia. However, the share of Russian crude in HPCL's kitty has fallen following fresh US sanctions on Moscow, the official said.

“Some of the entities who were supplying have been put on the sanction list. There are some vessels, some traders and intermediaries also (that have been put on the list). Now, because of that, the flow of Russian oil has come down,” Narang explained.

The US on January 10 imposed new sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, as well as on about 180 tankers that form part of the Eurasian country's shadow fleet, to curb Moscow’s revenues that Washington said were used to finance the war against Ukraine.

Under the latest US sanctions, the tankers carrying Russian oil had to be discharged by February 27 and financial transactions need to be completed by March 12, India’s oil secretary Pankaj Jain had said earlier citing a communication received by the US Office of Foreign Assets Control.

Refinery expansion

To meet India's rising energy needs, HPCL has plans to increase the capacity of its existing refineries instead of venturing into setting up new plants like its peer Bharat Petroleum Corporation Limited (BPCL).

HPCL currently operates two refineries, one in Mumbai with a capacity of 9.5 million metric tonnes per annum (MMTPA) and the other in Visakhapatnam, with a capacity of 15 MMTPA, recently enhanced from the earlier 13.7 MMTPA.

HPCL plans to further increase the capacity of the Vizag refinery, said Naranag, for which the company is awaiting board approval.

“We have recently expanded the Visakha refinery to 15 MMTPA. There is a scope of de-bottlenecking the refinery to increase the capacity by 20 percent. That proposal is not yet approved by the board, but we are working on that as to what unit we need to put. That is going to be a low-cost expansion,” said Narang.

HPCL is also setting up a 9 MMTPA refinery-cum-petrochemicals complex in Barmer, Rajasthan, which is set to be commissioned in 2025. Narang said the capacity of the Barmer refinery could also be further expanded.

“Our Barmer refinery will be completed this calendar year. The pre-investment has been made for 18 MMTPA," said Narang, adding that there is space left over from the unit already installed. "In case there is demand and there is a more requirement for more refining capacity, we are better positioned to scale it up,” he added.

Given the rising energy demand, the government aims to increase the country's total refining capacity to 450 MMTPA by 2030 from around 250 MMTPA currently.