Modi says India will continue to expand oil refining capacity

(Bloomberg) — India will continue to build new oil refineries to ensure supply chain security even as Western nations close processing units, Prime Minister Narendra Modi said.

“There has been no new refinery in the US in the last five decades and capacity in Europe is also steadily declining,” Modi said on Saturday as he inaugurated the country’s first new refinery in a decade. He said India will continue to expand capacity.

The 180,000 bpd greenfield refinery in the heart of Rajasthan’s Thar Desert, which has a petrochemical capacity of 2.4 million tonnes per year and was built at a cost of $8.3 billion, is likely to be the only new refinery commissioned globally this year, according to analysts BloombergNEF.

The facility expands India’s refining capacity at a time when much of the West is closing plants and investment elsewhere has slowed, underscoring New Delhi’s strategy of betting that strong domestic demand for fuels, slower adoption of electric vehicles and exports of refined products will continue to justify billions of dollars in new oil-processing infrastructure.

“The Barmer refinery adds highly complex refining capacity as one of the long-term drivers of global oil demand growth,” said BloombergNEF analyst Claudio Lubis. “We expect India to lead global refinery capacity additions between 2026 and 2030, adding more than 1 million barrels per day. This would account for just under a quarter of global capacity additions by the end of the decade,” he said.

The new refinery becomes particularly significant in the wake of the Iran conflict, which has renewed fears of a possible disruption of oil supplies through the Strait of Hormuz. Although the plant does not reduce India’s dependence on imported oil, it expands the ability to process wider oil shale and boosts domestic fuel supplies while maintaining exports.

“It is because of investment in projects like this that India has been able to weather the biggest oil supply shock in history,” Modi said. Even as other countries rationed supplies and raised fuel prices due to the closure of Hormuz, India’s investments over the past decade have ensured its economy remains well-supplied, he said.

The Rajasthan refinery is a joint venture between state-owned Hindustan Petroleum Corp. Ltd. and the Government of Rajasthan. It will primarily produce diesel, gasoline and petrochemical products, processing about 150,000 barrels of imported oil per day. Commercial operation began on June 22.

Modi was originally scheduled to inaugurate the project in April, but the ceremony was postponed after a fire broke out in the refinery’s distillation unit a day before the scheduled launch.

The latest project will increase India’s installed refining capacity by about 3.5% to 5.4 million barrels per day. The South Asian country, the world’s fourth-largest refiner, is on track to expand capacity to 6.2 million barrels a day by the end of the decade as companies replace aging units with bigger, more efficient plants at existing plants.

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