Future of petrochemical industry in India

How petrochemical industry in India drives growth with investment and innovation

EY
EY India

Multidisciplinary professional services organization

5 minute read 23 Aug 2024
Related topics
Energy and resources

India's petrochemicals sector is set for growth, driven by investments, government initiatives, sustainability, and digital innovation.

In brief

  • The petrochemical companies in India are projected to attract over US$87 billion in investments in the next decade, making up more than 10% of global petrochemical growth.
  • Despite a steady increase in domestic capacity, India's polymer demand is outpacing it, leading to significant net imports.
  • Embracing sustainability and optimizing operations through value chain integration are key strategies to reduce reliance on imports and compete with global companies.

As India marches towards achieving a GDP of US$5 trillion by 2025-26, the significance of the petrochemicals business is growing as they cater to growth across several sectors viz. agriculture, automotive, packaging, construction, manufacturing, and many more. The demand for chemicals is predicted to nearly triple and the petrochemicals industry in India may reach US$1 trillion by 2040. Against this backdrop, the importance of the petrochemical industry cannot be overstated. 

The future of petrochemicals in India seem bright as the chemicals market is forecasted to attract investments exceeding US$87 billion in the next decade as the country is expected to account for over 10% of the worldwide petrochemical growth. Recently, the Government of India has rolled out various initiatives, including 100% FDI through automatic routes, establishing Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs), and setting up infrastructure like 10-plus plastic parks. The new PCPIR strategy, which is to be executed between 2020 and 2035, can galvanize investments of more than US$420 billion (INR34 lakh crore) within the sector. However, India’s polymer demand is likely to outpace domestic capacity addition over the next decade and though the capacity for primary petrochemicals is steadily rising at a CAGR of ~6%, net imports have also grown at a CAGR of 19%.

To reduce the reliance on imports and address the growing need for polymer products, Indian PSUs are firming up plans to further invest in capacity building. With rising imports, Indian players need to think comprehensively to compete against global rivals. In our view, Indian companies could build a comprehensive strategy in the face of rising imports and increased competition from foreign players. Key aspects to include would be understanding market dynamics, embracing sustainability, optimizing operations through value chain integration, and leveraging digitalization to achieve cost leadership.

Understanding market dynamics: Customer needs are evolving, leading to higher demand for value-added petrochemical products across sectors such as automotive, packaging, textiles, construction and more. Petrochemical producers are, therefore, strategically integrating value chains and expanding product portfolios to include Acrylates, specialty polymers, among others.

In view of market movements and petchem players’ push to maximize value by including supplementary specialized petrochemical products that service the same industry or end client, there is a need for evolution in service offerings, channel orientation, product quality, complaint resolution and pricing. While some Indian companies are diversifying their portfolios with trade and purchasing products from other sources to offer a wider range, others are expanding their Polyolefins capacity to cater to the Indian petrochemical exports’ demand. 

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The biggest differentiator, however, would be to enhance the overall customer service excellence. Recently, a leading petrochemicals company underwent business transformation by identifying digitization opportunities. The company’s new pricing mechanism helped it become a market leader in polymer pricing while the best-in-class complaint handling policy enhanced customer service and improved profitability through the utilization of alternate and emerging sales channels. Apart from these benefits, the company was also able to firm up its export and import strategies.

 

As customer demands evolve, other petrochemical companies can develop models to embrace transformative strategies.

 

Optimizing operations through value chain integration: In the competitive petrochemical industry  of India, both horizontal and vertical value chain integration can have a significant impact.  Considerable cost synergies may be realized through refinery stream sharing and utilities system (for instance, steam integration across refining and petrochemical units, integration of refining byproducts - naphtha, off-gas as feed of cracker unit, integration of aromatics byproducts into refinery gasoline pool).

 

A large public sector refining company in India is expanding its domestic and overseas petrochemicals segment to bolster its downstream integration efforts. It is systematically expanding its customer base and using innovative supply logistics. The company plans to invest INR30,000 crore in petrochemicals, earmarked as a key driver of its future growth. The projects will leverage product streams from the company’s existing refineries, thus maximizing the utilization of the hydrocarbon value chain.

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Cost leadership through digitalization: Digitalization can optimize plant operations and improve petrochemical supply chain in India. The industry has already seen benefits in cost management as a result of enhanced reliability and real-time optimization. An exemplary case is of a European ethylene facility that implemented real-time optimizer. The comprehensive non-linear minute-by-minute plant optimization led to at an annual profit increment of US$12 million. A leading petrochemical player in Thailand improved its plant uptime by adopting a Digital Reliability Platform. It used big data, artificial intelligence (AI), and machine learning to analyze equipment condition and get predictive insights as well as actionable recommendations. The result was a much-improved plant reliability as well as ROI.

 

Embracing sustainability: Decarbonization and circular economy principles can guide practices and operations throughout the value chain. Production systems must prioritize reduction of emissions, energy efficiency, and investment in carbon capture utilization storage. Strategic alliances for decarbonization of furnaces in cracking units are poised to become an industry norm. A leading global provider of process technologies, along with the world’s largest bio-based polymer producer, is conducting joint studies on using an electric cracking heater to decarbonize a site in Brazil. This innovative electric cracking heater utilizes proven Short Residence Time (SRT®) technology adapted for electric operations and can be scaled. Such new technologies in the petrochemical industry can significantly reduce carbon footprints, enhance operational efficiency, and drive sustainable growth.

 

Companies are promoting polymer recycling to increase the use of recycled plastics across production and supply chains. Some have successfully transformed oil derived from plastic waste into circular polymers. The petrochemical industry is seeing a slew of innovations globally. Petrochemical companies in India are also taking steps to meet current and future demand. Along with these, innovation of sustainable solutions is an imperative to remain competitive as the petrochemical industry in India is set to play a bigger role in an evolving market.

 

Co-authored by Gaurav Moda – Partner and Leader, Energy Sector, EY Parthenon and Puneet Kumar, Director, Petrochem, EY Parthenon

Summary

The petrochemical industry is experiencing global innovations, and petrochemical companies in India are proactively addressing current and future demands. Strategic investments in Indian petrochemicals and advancements in the sector are crucial to stay competitive as the industry plays an increasingly significant role in the evolving market.

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    EY
    EY India
    Multidisciplinary professional services organization
    Related topics
    Energy and resources

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