ONGC plans to invest Rs 1 lakh crore to set up 2 petrochemical plants
ONGC’s plan to invest in two petrochemical plants for the direct conversion of crude oil into high-value chemical products reflects the company’s strategic response to the global energy transition. As the world moves towards reducing reliance on fossil fuels, ONGC, as India’s leading oil and gas producer, is adapting its approach to utilize crude oil in innovative ways.
Traditionally, crude oil extracted by companies like ONGC serves as a primary source of energy and undergoes processing in oil refineries to produce conventional fuels such as petrol, diesel, and jet fuel. However, with the ongoing global shift towards cleaner energy sources, there is a growing emphasis on finding alternative uses for crude oil.
Petrochemicals, which are chemical products derived from crude oil, play a crucial role in various industries. These include the manufacturing of detergents, fibers (polyester, nylon, acrylic, etc.), polythene, and other synthetic plastics. By investing in oil-to-chemical (O2C) projects, ONGC aims to establish facilities that can directly convert crude oil into a range of high-value chemical products.
This strategy aligns with the broader trend in the energy sector, where companies are exploring new avenues and diversifying their portfolios to adapt to changing global energy demands. ONGC’s focus on O2C projects reflects a forward-looking approach to stay competitive and contribute to the evolving landscape of the energy industry. The investment in these projects could have positive implications for both ONGC and the broader Indian economy by fostering innovation and sustainability in the energy sector.
ONGC, as India’s leading oil and gas producer, is strategically positioning itself for the future through a dual-focused approach. On one hand, the company aims to scale up its renewable portfolio to 10 GW by 2030, demonstrating a commitment to sustainable and clean energy sources. This aligns with global efforts to transition away from fossil fuels and underscores ONGC’s role in contributing to India’s renewable energy targets.
Simultaneously, ONGC plans to invest around Rs 1 lakh crore in establishing two petrochemical plants for the direct conversion of crude oil into high-value chemical products. This move is a response to the changing dynamics of the energy sector as the world seeks alternatives to traditional fossil fuels. During an investor call, ONGC officials, including Director (Finance) Pomila Jaspal and Executive Director D Adhikari, outlined their vision for building separate oil-to-chemical (O2C) projects.
While specific details were not provided, the company aims to invest Rs 10,000 crore by 2028 or 2030 in two projects across different states, with a goal to raise petrochemical capacity to 8.5-9 million tonnes by 2030. This strategic diversification recognizes the continued demand for petrochemicals in various industries, including construction, automotive, and electronics, even as the world undergoes an energy transition. ONGC’s proactive stance positions it to thrive in a future where both renewable energy and innovative petrochemical solutions play integral roles.
ONGC’s strategic focus on strengthening its chemicals business serves as a means to reduce reliance on the volatile oil market and enhance long-term profitability. The move is particularly significant as it aligns with a broader industry trend where energy companies are diversifying their portfolios to navigate market uncertainties and capitalize on emerging opportunities.
ONGC’s existing subsidiaries, Mangalore Refinery and Petrochemicals Limited (MRPL) and ONGC Petro-Additions Limited (OPaL), play a crucial role in this strategy. MRPL, situated in Mangalore, Karnataka, operates as a profit-making entity. In contrast, OPaL, located in Dahej, Gujarat, has a perceived “distorted” capital structure, as mentioned by Executive Director D Adhikari. To address this imbalance, the ONGC board has approved a significant capital infusion of Rs 18,355 crore into OPaL. This injection of funds aims to increase ONGC’s stake in OPaL to over 96%, up from the current 49.35%. By doing so, ONGC seeks to streamline and strengthen OPaL’s financial structure, thereby enhancing its control and influence over the petrochemical subsidiary.
This strategic financial maneuver not only supports ONGC’s commitment to expanding its presence in the petrochemical sector but also positions the company for improved financial resilience and competitiveness in the long run.
The equity infusion by ONGC into ONGC Petro-Additions Limited (OPaL) is set to result in a significant shift in the ownership structure of the joint venture. With ONGC’s infusion of capital, its stake in OPaL is expected to increase to over 96%, effectively edging out GAIL (India) Ltd, which currently holds 49.21% of the joint venture. The remaining 1.43% is with Gujarat State Petrochemical Corp (GSPC).
While this move will temporarily make OPaL a subsidiary of ONGC, the company aims to maintain the joint venture nature of OPaL. ONGC’s intention is to secure a strategic partner within the next three years, signaling a commitment to collaboration and shared ownership in the long term.
The equity infusion is seen as a crucial step to revitalize OPaL’s financial health, enabling it to become profitable in the fiscal year 2024-25. This aligns with ONGC’s broader strategy of strengthening its chemicals business and diversifying its portfolio.
The backdrop of the International Energy Agency’s (IEA) estimate that global oil demand will plateau by 2030 further underscores the rationale for energy firms, including ONGC, to explore alternative avenues. With the rise of electric vehicles and alternative drive technologies, companies are increasingly seeking to adapt their business models and investments to align with the changing dynamics of the energy sector. ONGC’s moves reflect a proactive response to industry trends, ensuring its continued relevance in a transitioning energy landscape.
The Crude Oil-to-Chemicals (COTC) technology is a transformative approach that allows for the direct conversion of crude oil into high-value chemical products, departing from the traditional focus on transportation fuels. This method is particularly notable for its efficiency in producing chemicals, constituting over 70-80% of the barrel, in contrast to the approximately 10% yield in a non-integrated refinery complex. Regions like China and the Middle East have taken the lead in planning and implementing COTC plants, with major players such as Saudi Aramco and SABIC announcing plans for significant projects.
ONGC recognizes the potential of COTC technology and aims to capitalize on this trend. The company plans to substantially expand its chemical and petrochemical portfolio, targeting an increase from the current 4.2 million tonnes per annum to 8.5-9 million tonnes by 2030. This strategic move positions ONGC to align with evolving industry dynamics and enhance its competitiveness in the changing energy landscape.
It’s important to note that ONGC’s investment in Oil-to-Chemical (O2C) plants is distinct from the previously mentioned Rs 1 lakh crore investment in energy transition projects by 2030. This comprehensive strategy includes plans to achieve net-zero carbon emissions by 2038, a significant commitment in response to global sustainability goals. Concurrently, ONGC is scaling up its renewable portfolio to 10 GW by 2030, further demonstrating a multifaceted approach to adapt to the evolving energy sector and reduce its carbon footprint.
