Refinery MRO Services Markets in India

Abstract

Research Overview

Pressure on Refining Margins Heightens Demand for Maintenance, Repair, and Overhaul (MRO) Services

Aided by the boom in refining margins and deregulation of the refining sector, India's refining capacity is continuing to witness impressive growth. While this is prompting the incorporation of new refineries and the expansion of production capacities, rising crude oil prices and Government control over retail prices are adversely impacting the margins of oil companies of late. Consequently, refineries are increasingly looking toward MRO service providers to reduce costs and improve efficiencies and contracts for MRO services and these refineries are likely to see strong growth between 2006 and 2012.

Expansion of Refining Capacities Drive the MRO Services Market

India's refining capacity, which presently stands at 127 MMTPA, is expected to touch almost 180 MMTPA in 2012. While this implies the setting up of more refineries and increased MRO opportunities, stringent emission norms have also meant that most refineries are implementing the Clean Fuel project to meet environmental regulations. As a result, the addition of new process units to refineries is expected to further enhance opportunities for MRO service providers.

However, excessive safeguard measures taken by public sector units (PSUs) could act as a deterrent to organized MRO service providers. "Stringent clauses adopted by PSU refineries for the contracting process mandate that the service provider is entirely responsible for any delays and is penalized excessively in case of the same," says the analyst of this research service. "Nevertheless, PSUs are expected to do away with the archaic contracting process in the next three to four years, rendering the modified contracting processes more attractive to MRO service providers."

Continued Deregulation of the Refining Sector Promises Future Opportunities

Although outsourcing of the operation and maintenance of refinery units is a new concept in India, deregulation and the entry of private sector-based oil refining companies are changing the way the PSU management operates. Incorporating practices followed by Western and Middle East oil refining companies, the Indian refinery management is considering outsourcing the operations as well as maintenance of non-core units such as nitrogen, zero discharge, and demineralization units to service providers. Routine maintenance is also expected to be outsourced to service providers; however, with hydrogen units considered very important in regard to safety, outsourcing the operations of this unit may take longer.

With new refineries being built and existing ones adding to their production capacity, India is poised to take a huge lead in terms of refining capacity in comparison to other countries in the Asia Pacific region. "The competitive market has a mix of large lump sum turnkey (LSTK)/engineering, procurement, and construction (EPC) contractors, original equipment manufacturers (OEMs)/process licensors, as well as local maintenance service providers competing for the majority of the bids for turnaround and maintenance contracts," says the analyst. "The time of completion of turnaround maintenance activities has been identified as the most important criteria considered by refineries in the choice of MRO service providers."