Deloitte: Investment potential in chem, petchem | Economic Times

We are a net importer of both chemical and petrochemical products; so there is a huge domestic market to be tapped, says Debasish Mishra, Partner.You are somebody who works with similar petrochemical companies, chemical companies and oil companies in the entire region. Tell us what exactly is the oil to chemical narrative and what exactly does it mean.So, the auto sector as you know is going through a lot of turmoil right now and the future of mobility is changing really fast. So the future of mobility will be connected. It will be autonomous and over and above everything, the biggest shift is going to be more and more electrified. So one is expecting more adoption of electric vehicles throughout the world; more in the OECD world. In our part of the world, too, we are expecting that gradually. If you see the NITI Aayog papers, we will shift towards electric vehicles. So as a result, what will happen is that petrol, diesel and the liquid fuel demand will gradually taper off and come down in certain parts of the world earlier than it was expected. So what will happen to all these refineries? People are already planning for that and some of the companies are pretty ahead of the game in terms of what we do with this crude. Very interestingly, for your audience, the crude or the oil has a variety of uses. We usually in a conventional term think it gives us petrol and diesel. It will be very interesting for your viewers to know that a barrel of oil can give you 40 litres of diesel. It can also give you 40 polyester shirts or 650 tooth brushes. As a result of increasing polymer and plastic consumption throughout the world, now companies are thinking of moving more towards output which caters to such demand and catering to how the future of mobility is going to be. So the conventional refiners, who at best were integrated as refining and petrochemical complexes, are moving towards trade from crude to chemical complexes and that is what is the new thing that is happening throughout the world.What you are saying is that the usage of crude is being redefined with every industrial phase. The way we are entering into a new world where demand for traditional fuels for auto is going down, crude oil again is being refined into newer products of demand which are emerging. Talk to us about the sectors globally where these chemicals are being derived out of the same barrel of oil. Which sectors are we talking about globally which are witnessing higher usage of these newer chemicals.You recently told your audience that it is the golden age for the chemical sector. As I was telling in my opening remarks, a traditional refinery cum petrochemical complex gives at best 8% to 10% chemical output per barrel of oil. So in the whole concept of crude to chemical, we are talking about a benchmark in excess of 40% per barrel of oil, which is a huge change in the entire configuration. Coming back to your question of which all segments will need this kind of chemical usage going forward; if you look at whether it is agrochemical, dyes or pigments or construction chemical or speciality chemical, the usage would be so widespread that it is unbelievable. If you look at where India is today, our plastic consumption is around 10-12 kg per capita whereas countries like the US have reached 85 kg. As the country’s per capita GDP crosses around $2,000 per capita, plastic consumption which is a discretionary usage of material would significantly increase. We are a net importer of both chemical and petrochemical. So there is a huge domestic market to be tapped. So both chemical and petrochemical segments have a huge potential for investment in India.How is this change in phenomenon globally relevant to Indian refining assets; not talking about specific companies but we know that one of the large private sector refiners right now is looking at partnering with global biggies. Even the PSU refining assets are being eyed by global investors. Suddenly why is there eagerness to look at Indian O2C assets or possible O2C assets? Can it be because of rising demand domestically or do you think India can be a base for exports in the region? What is the strategic play behind this in your view?So there are three things. One is the import substitution, second thing is obviously the rising demand of plastics and polymer and that will be in double digits for the next two decades. And also India can definitely be a base for exports. And if you look at the entire region, there are a lot of these oil to chemical companies and investments are coming up in the Middle East and in China. In fact, the company which has a stated policy focussing on crude to chemical, oil to chemical is the largest company in the world, which is Saudi Aramco. It is the largest oil producer and has around 10 million barrels per day of production. It has a stated policy of at least diversifying from upstream and having eight to nine million barrels of refining capacity and they want at least four to five million barrel output per day of chemical capacity. Now there is a large Aramco Sabic deal which is almost a $70-74 billion deal. Aramco also has a joint venture now with Chevron. They have invested in Chinese company, which is Zhejiang. As you know, they are also keen and have signed MoU with the Indian government to take a stake in our West Coast Refinery. And although it is still on the drawing board, it will also have a large amount of chemical output compared to a traditional refining complex in India currently. So that is going to be the future and that is why the global companies are very keen on investing in some of those opportunities in India.