NRL MD Shares Insights on How Major Expansion, Green Energy Initiatives Will Boost Northeast India's Economy

Guwahati: Numaligarh Refinery Limited (NRL), the Assam-based PSU is in the final stages of its expansion project (Numaligarh Refinery Expansion Project- NREP) that will triple its refining capacity from 3 million metric tonnes per annum (MMTPA) to 9 MMTPA. This Rs 28,026-crore project, which involves the construction of a 1,640-kilometer crude oil pipeline from Odisha’s Paradip port to Assam, enhancing connectivity and reducing logistical costs is slated for completion by 2025. This development also includes achieving net-zero carbon emissions by 2038 and expanding its market reach to neighbouring countries like Bangladesh, Bhutan, and Nepal.    
    
During an exclusive conversation with Priyanka Chakrabarty and Pankhi Sarma for Business North East (BNE), Bhaskar Jyoti Phukan, Managing Director of NRL, highlighted that the expansion will significantly boost Northeast India’s economy by enhancing employment opportunities and local business participation in ancillary industries like transportation. NRL’s initiatives, including the launch of biofuel and green hydrogen projects, underscore its commitment to sustainable energy solutions and align with its vision of achieving net-zero emissions by 2038. This development positions NRL as a regional powerhouse, driving economic and environmental progress for the Northeast, and is expected to address rising fuel demand in the Northeast while positioning NRL as a key player in India’s energy landscape. Here are the excerpts from the interview:

Interview Q&A:

1. Business North East: NRL is currently undergoing a significant expansion to increase its refining capacity to 9 million tons per annum (MTPA) by early 2025, which involves a major investment of Rs 28,026 Crore. Could you provide an overview of the expected impact of the expansion project on the regional economy and the challenges faced throughout the process?

NRL MD: Project expansion is expected to boost our top line from Rs 24,000 Crore to around Rs 50,000 Crore. This growth positions us as a significant contributor to Assam's GDP and provides a strong economic boost to the Northeastern region. Expansion will impact employability, and downstream activities will naturally follow. More products mean increased GST and VAT contributions, benefiting state and central revenues. Additionally, the transportation and logistics sectors stand to gain, with heightened activity likely to result in increased freight earnings for the railways and oil suppliers. Such developments present substantial economic benefits.

2. BNE: We have heard that NRL plans to incorporate Green Hydrogen into its operations to reach net zero emissions by 2038. What strategies is NRL employing to stay competitive in the evolving energy landscape?

NRL MD: Green energy, such as EVs, is competing with conventional power, and they must compete with their cost-effective counterparts. As the market is not dominated by green energy, it is incumbent upon them to innovate and outperform their competitors. For the bamboo bio-refinery, we have already invested Rs.4200 crores. The green hydrogen plant costs Rs. 150 crores for 17 megawatts. Others will be BOO (Build Own Operate) basis, which means there will be other investors. We will buy it. 

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3. BNE: How is Numaligarh Refinery addressing environmental concerns and embracing sustainable practices?

NRL MD: The company aims to achieve net zero emissions by 2038, focusing on bio-ethanol and reducing carbon dioxide emissions. The company has invested in a 17-megawatt green hydrogen plant and is pursuing tenders for 10,000 metric tonnes of green hydrogen. As hydrogen becomes greener, carbon dioxide emissions will decrease. Additionally, the company is collaborating with the state government on three major projects in Dibrugarh, Nagaon, and Golaghat. Work on bamboo supply chains, with a tissue culture lab and three nurseries measuring 15 hectares is ongoing. These efforts aim to build an ecosystem that is carbon-neutral and carbon-sync by creating forests and reducing carbon emissions.

4. BNE: Beyond cost and time overruns, what additional risks or primary challenges do you foresee in the project, and how is Numaligarh Refinery working to mitigate them?

NRL MD: The company faces challenges in terms of transportation and production costs. To address these, they have partnered with Oil India Limited to construct a nearly 600-kilometre pipeline from Numaligarh to Siliguri, with plans to expand its capacity to handle increased production after the upcoming expansion. They are also exploring opportunities in Bangladesh to reduce freight costs. We are mindful of potential long-term declines in auto fuel demand. Hence, we have configured our refinery to adapt production based on market needs, providing flexibility to manage demand-side risks. With rising steel and metal prices, we employ high-tech solutions like video analytics, electronic monitoring, and a paperless office to control costs and expedite project timelines.

5. BNE: Given the risk of supply chain disruptions, is NRL prepared with contingency plans?

NRL MD: Our supply chain is quite secure. Our 3 million ton crude and steady gas supply secure 70-80% of our product base. India imports over 80% of its crude, while alternative sources like Russian and Venezuelan crude have been added recently. Market rebalancing may bring short-term disruptions but typically stabilizes within a year or two. Thus, our supply chain is resilient to fluctuations.

6. BNE: Could you elaborate on the significance of the crude oil import terminal at Paradip terminal for NRL? What level of investment has been made?

NRL MD: Paradip is crucial, serving as our primary import terminal. We leverage existing IOC infrastructure, saving on setup costs by utilizing VLCC assets significantly reducing transportation expenses. Paradip Port has allocated us 200 acres to set up a crude terminal, allowing us the flexibility to import diverse crude varieties for optimal economics. This facility provides a valuable advantage in refining and importing operations. The bulk of the investment in Paradip has been through IOTL, now an Indian Oil-Adani joint venture. Our contributions cover the mainline pump, land, and pipeline, which is entirely ours. We also pay a handling fee for this infrastructure.

7. BNE: With the planned exports of refined products like motor spirit (MS) and high-speed diesel (HSD) to Bangladesh, how does NRL aim to position itself in the regional market? 

NRL MD: Export to Bangladesh continues smoothly despite political uncertainties. Energy demands remain high, and they continue to rely on us as a consistent supplier, with an export volume of around 88,000 to 100,000 metric tons per half-year.

8. BNE: The global energy market has been facing significant price volatility. How does NRL manage the impact of fluctuating crude oil prices on its operations, and what strategies are in place to hedge against such risks?

NRL MD: Currently, refining margins are low, not necessarily due to crude prices but rather global economic stagnation. India, with growth above 7%, is an outlier as most major economies face stagnation. Geopolitical tensions are also affecting the global economy, tempering hydrocarbon demand. However, market projections from BP, Shell, and OPEC anticipate a rebound in oil demand, so this downturn is likely temporary.

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9. BNE: Could you update us on the bamboo-based biofuel project? When do you expect it to be commissioned?

NRL MD: The biofuel project is now in the commissioning phase, and we expect to produce the first drop of ethanol by 2024 end. While specific dates are uncertain due to the pioneering nature of this project, the initial production milestone will be reached this year, with capacity gradually scaling up over time.

10. BNE: Are there any specific technological innovations or investments NRL focuses on to improve refining processes?

NRL MD: We’ve brought in one of the most advanced processing plants called LC FINNING. Digitally, we have introduced something called ‘digital twins’ which helps us optimize the plant at real timing. However, over time, the equipment deviates from the original design parameters. On the actual parameters, you have to optimize the plan on the go. So this digital twinning effort helps you to overcome that. Secondly, you have to be more and more reliable to be energy efficient. In terms of reliability engineering, we have done a lot of technology infusion like vibration sensors put in every sensitive equipment and we are analyzing vibration to predict the defects or predict the breakdown. It is done so that we can take preventive action.

11. BNE: Can you highlight current collaborations or joint ventures contributing to Numaligarh Refinery's growth?

NRL MD: NRL is partnering with a Finnish company along with IIT Guwahati to convert bamboo dust into biochar and activated carbon. They are also collaborating with IOCL on the In Max technology, a petro-fluidized catalytic convertor developed by IOCL, to enhance the production of LPG and propylene.

12. BNE: How is Numaligarh Refinery navigating current government policies and regulations affecting the oil and gas sector?

NRL MD: Like other refineries, NRL is also impacted by government policies in similar ways. They plead for corrective policy decisions and respond to adversities. They also adjust their product patterns if taxation does not allow input tax credits. If this is not possible at the government level, they tweak their product pattern. Each policy requires a separate response, as they must adapt to the situation.

13. BNE: What are the key growth strategies that Numaligarh Refinery is pursuing in the short and long term?

NRL MD: Auto fuel as a mobility solution will remain in demand for some time, and our policies aim to ensure we remain flexible in deciding between auto fuel and other chemicals. If the market doesn't want it, we will stop producing it. This is the overall policy we have taken.