Sailing Away to Glory

The first two decades after Independence were a heady period of nation-building. It was a time when a youthful nation began finding its feet and started building ‘modern temples’ with great zeal. The trend of building vital infrastructure and institutions was particularly strong in the hydrocarbons sector. In August 1956, the Oil and Natural Gas Commission (ONGC) was formed. In the downstream sector work to launch a number of refineries was initiated.

In January 1955 the refinery in Mumbai was commissioned with an original capacity of 2.2 Million Metric Tonnes Per Annum (MMTPA). Eight years later, under an agreement between the Government of India, Phillips Petroleum Co Ltd of USA and Duncan Brothers of Calcutta, the Cochin Refinery Ltd was established on 27 April,1963. The original refining capacity of KRL was 2.4 MMTPA. The agreement was considered a landmark. Getting a big American company to join the project as a minority shareholder was considered a success in itself. Those were heady days for the petroleum sector under oil minister K D Malaviya who helped create the public sector oil institutions in the teeth of opposition from many vested interests. At that time there was criticism that too much ground had been conceded to the Phillips Company, including the exclusive right to import crude oil for 15 years for the refinery. The high process margin of $1.35 per barrel of crude was another criticism. These were proven totally wrong and the refinery, later renamed as BPCL Kochi Refinery, has gone from strength to strength in its journey since 1963.

In 1973 the capacity of the refinery was increased to 3.3 MMPTA which was further increased to 4.5 MMPTA in 1994. In the same year, the refinery’s crude processing capacity rose to 7.5 MMPTA with the addition of a second crude distillation unit of 3 MMPTA. In the years that followed, further expansion activities increased the capacity of the refinery which now stands at 9.5 MMPTA. The Kochi refinery is one of the four refineries in the BPCL stable. The first refinery to be commissioned, in 1955, was located at Mumbai followed by the second one at Kochi. The other two refineries, one at Bina in Madhya Pradesh and the other at Numaligarh in Assam are ventures with other partners. The Bina refinery is a joint venture between BPCL and the Oman Oil Company SAOC, Sultanate of Oman. This refinery has a capacity of 6 MMTPA and caters to the growing demand for fuel and various petrochemical products in north and central India. The Bina refinery is supplied crude oil by a pipeline that runs from Vadinar in Gujarat to Bina in Madhya Pradesh. The Numaligarh refinery is located in Golaghat district of Assam. The refinery has a capacity of 3 MMTPA and is a joint venture between BPCL, Government of Assam and Oil India Ltd. It began commercial production in October 2000. BPCL is a Fortune Global 500 list company.

The BPCL Kochi refinery has had an interesting journey since inception. In 1963, Ambalamugal—the location of the refinery near Kochi—was a sleepy hamlet. Today it is an industrial hub that never sleeps. The original intent of the Kochi refinery was to provide fuel supplies in India’s southern region which at that time did not have significant production of refined petroleum products. Most of the refineries were located in other parts of the country. At that time, when demand for fuels was not as great as it is today, 2.5 MMTPA was considered a large capacity. Over the years, as incomes, lifestyles and availability of consumer goods have grown, so has the demand for petroleum. The Kochi refinery has kept pace through these developments by constant increases in its capacity. The current round of capacity expansion under the integrated refinery expansion project— which will increase capacity from 9.5 MMTPA to 15.5 MMTPA—will make Kochi the largest refinery in the public sector. There are plans to invest up to Rs55,000 crore in refining capacity over the next four years and the total investment will be Rs1 trillion.

The next phase of the expansion may look at taking the capacity expansion to 22 MMTPA after the current expansion is completed. This was hinted at by BPCL chairman S Varadarajan recently. What makes the expansion attractive is the fact that unlike other industrial giants which face constraints due to tough land acquisition policies, the Kochi refinery will have enough land available even after it expands to 15.5 MMTPA. Another feature of the Kochi refinery that makes it stand out is its fuel handling infrastructure that is the envy of the industry. The refinery has its own shore tank farm that has four tanks in place. Each tank has a capacity of 80,000 kilolitres and there is space for for two more tanks. In 2007 the refinery completed the single point mooring system that enables the facility at Kochi to handle very large crude carriers (VLCC). VLCCs are ‘supertankers’ that can carry upto 250,000 deadweight tonnage of crude oil. This aspect of handling large volumes of crude oil is especially important for refineries as it has a direct bearing on reducing the cost of crude oil. Higher tonnage implies a significant reduction in costs and directly impacts the profitability of a refinery. But creating shore tank and VLCC handling infrastructure requires large investments. The Kochi refinery has managed to do all this effortlessly. In fact that constant attention given to expansion plans along with the resources required to think ‘big’ has been a hallmark of the Kochi refinery and BPCL in general. Whatever be the constraints, these resources have been found and invested.

From a simple beginning of refining to make available petroleum products to be used as fuels in different sectors of the economy, the Kochi refinery now has an enviable portfolio of products that it churns out. Among fuels, it supplies LPG and superior kerosene oil for use in households. Its mainstay is, of course, the combination of petrol and high- speed diesel for use in automobiles. Then there is naphtha which is an important ingredient that is used as a major raw material in fertilizer and other industries. The refinery also produces aviation turbine fuel.

Then there are speciality chemicals that are by-products in the refining process. These include benzene which is used in a number of chemical industries to make phenol, insecticides and a number of other synthetic products. Toluene is another chemical, similar to benzene, which is used to manufacture solvents and other chemical products. Sulphur is another important by-product which comes out of refining crude oil of certain types that are called “sour.” Sour crudes generally have 0.5% of more of sulphur in them. Sulphur is an important raw material that is used in sugar, tyre, fertilizer and other industries. The Kochi refinery also produces propylene which is used as a feedstock for manufacturing various petrochemicals.

While finding innovative ways to make maximum use of the raw material it has at hand, the refinery has not left sight of creating new products. The in-house research and development activities at the refinery have led to the creation of two interesting chemicals: natural rubber modified bitumen or rubberised bitumen. Bitumen, which is ‘heavy’ by- product of crude oil distillation used to build roads. It has been found that adding polymers such as natural rubber, which is available in abundance in Kerala as a natural product, can improve the quality of the material used in road construction and also improves the life of roads. The other product specially made at Kochi refinery, one that has been continuously tested and found successful, is a diesel additive that improves the efficiency of combustion inside a diesel engine and improves fuel efficiency. The additive has been tested in a number of laboratories in India and globally. It is a petroleum product that burns out completely without leaving a trace and does not clog any part of the engine.

The building of chemical industries in India—of which the Kochi refinery is a big part—was considered a basic part of nation-building. These basic blocks are a big part of the end consumer goods in the hands of millions of Indians. In 1963 it was scarcely believable that the scale and demand of these chemical products would rise as rapidly as was seen in the decades ahead. In this process, the Kochi refinery has played its small but important role quietly.

The other satisfying feature of the development of Kochi refinery is its commitment to environmental, safety and organisational standards since its inception. Spread over 1,300 acres, the refinery has blended very well with its natural environment. The rain-harvesting system and the eco-park have been developed keeping in mind the refinery’s environmental philosophy. These are not artificial features: they go hand in hand with the effort that has been made to treat waste thoroughly at the facility along with the efforts to reduce waste and conserve water.

Closely linked to this enviable environmental track record is the safety record of the Kochi refinery. The careful training of employees and contract workers and the regular awareness programmes on safety have led to the refinery achieving more than 43 million accident free working hours. This is not easy to achieve as the refinery is a complex maze of different chemical processes involving the handling or large volumes of hazardous materials. Safety is not something that happens merely by following instructions mechanically. Constant awareness and the blending of different processes are essential to achieve the final outcome that is called safety.

Along with achievements in expansion and efficiency has come recognition for organisational efficiency that makes these outcomes appear seamless and easy. The combined environmental, safety and organizational practices have led to the Kochi refinery being awarded the ISO 9001:2008 certification for quality management system; the ISO 14001:2004 certificate for environmental management system and OHSAS 18001:2007 for occupational health and safety management system. These certifications are among the most coveted for any industrial organisation. They are given for consistent achievements in large industrial systems and are not the achievable overnight. The Kochi refinery being awarded these certificates shows how attention has been paid to these important activities over time by creating employee awareness and putting in place systems and processes that help achieve these outcomes.

These are no mean achievements for an organisation that had comparatively small beginnings in a country that had a relatively underdeveloped oil and gas sector. But as with any series of developments meant to overcome challenges, others follow in their wake. The one big challenge for the hydrocarbons sector anywhere—and India is no exception—is that of the wild swings in crude oil prices seen over the last decade. From a high of $147 per barrel in 2008 to a precipitous decline in 2014, the commodity has seen fluctuations that can have an uncertain and adverse effect on investments, especially large investment in refineries and other infrastructure. At the time of the high price of crude oil some years ago, it was fashionable to claim that the world had reached a “peak” of oil production and after that point oil would only get more expensive until the point it ran out. If that dire prediction turned out to be inaccurate, the swing in the other direction, too, was unexpected. It is also well-known that there is high global politics involved in pricing and output decisions in the oil industry at the global level.

What helps India is the fact that it has a huge base of consumers (the country’s population is now 1.3 billion) and demand for petroleum products will only rise in the years and decades ahead. The care taken in decisions on expanding the refining capacity of existing assets (brownfield expansion) and commissioning new refineries (Greenfield expansion), especially in the public sector, has served the country well. BPCL has grown tremendously over the years and in Kochi refinery in particular has done well. There are now large refineries in the private sector with capacities in excess of 25 MMTPA. The public sector is well-placed to meet the challenge of competing with its private sector peers. It is in that context that the desire and future possibility of expanding the Kochi refinery should be viewed. The future is bright for this pioneering refinery.

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