While global companies such as Total, Kuwait Petroleum and LN Mittal group eye investments in India's refining sector, Indian companies are looking at refinery projects overseas to tap new markets like Africa and ensure proximity to the high-margin European and American markets.
Nearly all Indian oil companies, both from the public and the private sector, are looking at refineries as well as retail chains in Africa.
Indian Oil Corporation, the country's largest refiner and marketer of petroleum products, is weighing the option of setting up a refinery of about 12-15 million tonnes per annum (mtpa) with an integrated petrochemical complex in Egypt.
The economic feasibility of a refinery depends largely on transportation costs to get crude oil to the refinery, then transporting the petroleum products to the markets.
"The proximity of Egypt to Europe, and to some extent the US, gives it a locational advantage. That immediately bolsters the bottomline. Although the market for petroleum products in Africa is very small, it is growing and could become big in the next few years," said a Delhi-based analyst who advises oil companies.
"If India is being marketed as a refinery hub, Egypt is even better located to be one such hub," said a senior IOC official.
Essar Oil, which is more than tripling the capacity of its Gujarat refinery to 34 mtpa from the current 10.5 mtpa, is also tapping Africa. It is keen on buying a 50 per cent stake in a 4 mtpa refinery in Kenya.
A 4 mtpa refinery may not be large, but it is competitive, because most African countries are importers of petroleum products.
"The economies of scale for a refinery are different for India and Africa. India being a net exporter of products, refineries need to have capacities to the tune of 15 mtpa to push products to the domestic market and for export. In Africa even a small refinery makes sense," the analyst said.
Reliance Industries, which operates the world's third largest refinery at Jamnagar, acquired Gapco, which owns retail outlets and storage tanks in east Africa, earlier this year.
"Africa is emerging as the next big market," said a senior official in the petroleum ministry.
While companies such as IOC and Bharat Petroleum Corporation, also a government-owned company, will set up refineries overseas only if they are allotted oil and gas blocks there, analysts say this might not always be feasible.
"First, there are hardly any allotments on a nomination basis. Also, locational advantages for markets such as Europe and the US that give have high refining margins, determine the feasibility of a refinery," said another Delhi-based analyst with an international advisory firm. However, he agreed that control over supply sources is always an advantage.
A senior IOC official said Egypt has that advantage.
"There is talk of us being given exploration blocks, but that does not always mean oil will be found there. Besides by setting up a refinery we will mark our entry into the prospective African market," the official said.