With petroleum product demand continuing to outstrip supply in the future, India’s reliance on imported fuels presents a strong opportunity for independent storage operators to invest in the country’s logistics infrastructure.
Strong demand in industrial and automotive sectors, coupled with growing population and increased GDP growth is pushing the country’s oil requirement to higher levels.
Economic reforms in the 1990s opened up the country to private and foreign investment across various sectors, particularly in the energy sector. However, despite investment in the country’s production capacity, thanks to private sector development in the refining sector from 2000 onwards, the country still needs some imports since there is always a lag in creating refining capacity to meet the demand for cooking fuel and transportation fuels.
With demand for petroleum products expected to be 380 million tonnes by 2030 from the current level of 220 million tonnes, there is plenty of scope for independent terminal operators to exploit these favourable investment opportunities.
In an interview with Tank Storage Magazine, Sridhar Ramamurthy, downstream advisor, explains that India’s energy consumption per capita is one third of the global average and that strong demand is expected to be sustained.
‘This demand will exceed indigenous availability of refined products, which will necessitate imports at coastal locations. Though there are plans to expand and add additional capacities progressively, the supply is expected to lag behind demand.
‘Regional imbalances of demand and supply will also require coastal movements to consuming locations from refineries. Therefore, storage and distribution terminals must be created to receive product by various modes such as pipeline, rail and ships.’
Enhanced safety regulations and an inability to upgrade existing terminals to improve productivity are the main drivers for new investment in the country. Ramamurthy says that government and private oil companies are keen to hire rather than significantly invest and are expressing an interest in outsourcing terminal operations.
‘To enhance refinery capacity and pipeline transportation, which is a core priority, oil companies in India are pursuing different models of collaboration with reputed terminal operators through joint ventures and build, own, operate and transfer for marketing and distribution activities. Scope exists for independent terminal operators to exploit the opportunities to invest.’
However, availability of land at reasonable rates, regulatory issues as well as statutory safety standards present a challenge for independent terminal operators. Additionally, limitations of port facilities such as draft size, congestion and bankable guaranteed utilisation and rental agreements with users are also challenging.
‘Many of the inland terminals are being created by oil companies to receive product by pipeline or rail, so unless these companies decide to outsource the terminal operation or share the investment, the scope for developing inland terminals is limited,’ explains Ramamurthy.
‘However, with significant emphasis on creating, expanding and modernising port facilities, there is an urge to develop high capacity terminals in port locations to optimise coastal transportation costs.
‘With demand exceeding operable refining capacity until at least 2030, import and coastal movements cannot be avoided, thus creating a strong need for coastal terminals.’
Ramamurthy will be talking more about the opportunities and challenges of setting up petroleum products storage terminals in India on the second day of the Tank Storage Asia conference in Singapore on September 25 & 26. For more information visit www.tankstorageasia.com.