Praxis Global Alliance
Oil & Gas and Chemicals Sector to Recover to Pre-COVID Levels by Q3FY21: Praxis Report
01 Oct 2020
The Ministry of Petroleum and Natural Gas is planning to extend tax concessions and reduce oil cess for spurring growth in the COVID-hit domestic oil and gas sector. COVID-19 led to a decline in energy demand due to travel restrictions and industrial inactivity during the lockdown.
A recent study by Praxis Global Alliance, a leading management consulting and advisory firm, and Zetwerk, an Indian B2B marketplace for manufacturing products and services, takes a closer look at the impact of COVID-19 and the future outlook of the oil & gas and chemical sectors in India.
Some key insights from the report include:
Oil & gas
- Refinery capacity has increased at 2.5% CAGR over FY12-18, indicating a moderate increase in demand for petroleum products
- Advent of electric vehicles might impact demand in the future, but an increase in demand for aviation turbine fuel, petrochemical feedstock, etc. will drive growth
- Public sector accounts for 57% refinery capacity with IOCL charting the highest refinery capacity followed by private companies like RIL who have invested heavily in both upstream and downstream segments
- Foreign oil companies have also entered the downstream segment by creating JVs with public sector players
- Oil & gas sector is attractive for EPC firms due to stable payment cycle because of the healthy balance sheet of asset owners
- DRO and DPO for EPC firms decreased from 4 to 2 months and 6 to 4 months respectively over FY15-19
- Oil demand is expected to rebound by Q3FY21, but upstream companies will be more vulnerable to price fluctuations
Chemicals
- India’s net imports of chemicals and petrochemicals are 40% and 7% of their respective domestic production in FY19, primarily because of higher production cost and lower manufacturing scale
- Installed capacity for chemicals and petrochemicals has grown at moderate CAGR of 2.1% and 4.3% over FY12-18
- Polymer, synthetic rubber, and inorganic and organic chemicals have higher imports
- Chemical sector is fragmented with the presence of a large number of SMEs, whereas the petrochemical sector has an oligopolistic structure with high private sector presence
- Most downstream oil & gas companies have petrochemical refineries
- Sector is attractive for EPC firms due to stable payment cycle because of the healthy balance sheet of asset owners
- WC requirement for EPC firms increased from -22 to -7 days over FY11-19
- Chemical and petrochemical demand is expected to rebound by end of Q3FY21, but margins may remain affected
Aryaman Tandon, Director, Praxis Global Alliance commenting on the report findings said, “Oil & gas and chemical demand is expected to rebound from COVID-19 crisis by the end of this year. Recovery to be led by downstream firms as offices resume operations and more people opt for private transportation for daily commute, along with complete re-start of public transport. Chemical and petrochemical demand is also expected to pick up as industrial activity further increases.”
Amrit Acharya, Co-Founder and CEO, Zetwerk added, “India’s oil & gas, chemical, and petrochemical sectors are projected to grow in the near future as consumption increases, thereby making the sector conducive for investment. Proposed investments by major oil companies such as ARAMCO are expected to further drive capacity creation in the sector. The ecosystem for manufacturing is maturing significantly as small suppliers become more digitized and scale up capacities to meet demand.”
The report analyses the impact of COVID-19 on key parameters like raw material and equipment supply, manpower availability, payment terms and cost, availability of finance, payment terms and pricing, and consumer demand, which gives the report a broader view of the sector and trends at play in the current scenario.
The report suggests that in the short term, the Government should play an instrumental role in ensuring continuity of CAPEX plans for oil & gas, major chemicals, and petrochemical companies to further facilitate the smooth recovery of the sector. In the medium term, measures such as ensuring clearance for capacity expansion projects and introducing liquidity in the market by reducing lending rates to spur capex investment will play a vital role.
For further information contact:
Diksha Bhutani
Lead – PR and Communications
M: +91 9354 137 148
E: PR@praxisga.com