The Petrochemical Pivot: India's Refineries Are Learning to Stop Burning and Start Building
India's refiners are pouring over Rs 3 lakh crore into petrochemical integration, betting that the barrel's future lies in polymers and propylene — not petrol pumps.
A quiet revolution is underway in India's industrial heartland. The country's refineries are being reimagined not as places that burn hydrocarbons, but as places that build things from them.
"Increasingly, we are seeing a movement more towards what I call conversion rather than combustion," Atanu Mukherjee, CEO of Dastur Energy, told The Core. If peak gasoline arrives by the early 2030s, a refinery that can only make petrol and diesel is a depreciating asset. One that also produces ethylene, propylene, and specialty chemicals is a going concern.
The metric that captures this is the Petrochemical Intensity Index, or PII, the percentage of crude a refinery converts into chemical feedstocks rather than fuel. It is fast becoming the most important number on an Indian refinery's dashboard.
Arvinder Singh Sahney, IOCL's Chairman and Managing Director, laid out the blueprint to The Core.
Company-wide, IOCL's PII sits at 6.1%. "Very nominal," in his own assessment. But at the two refineries IOCL has designated as petrochemical hubs, the picture is radically different. "In Panipat, we are already beyond 30% of my crude that is going into Panipat is getting converted into petrochemicals. And in Paradip also, with my new petrochemical projects coming up, there again it will be going beyond 35%," Sahney said.
Beyond an engineering upgrade, the gap between 6 and 35 percent is closer to a philosophical repositioning.
At 35 percent intensity, a refinery is functionally a chemical factory that also happens to make gasoline. IOCL is backing this with capital: Rs 61,077 crore for Paradip, Rs 36,225 crore for Panipat. The target is to more than triple petrochemical capacity from 4.3 to well over 13 MMTPA by 2030.
That structural uplift matters more than ever. IOCL's 9M FY26 GRM recovered to $8.41 per barrel from $3.69 a year earlier, yet its petrochemical segment posted a Rs 362 crore loss in Q3 alone. Refiners cannot rely only on fuel margins. A structural $1 to $1.50 per barrel chemicals uplift, for a 300,000 barrel-per-day refinery, translates to hundreds of millions of dollars annually. That is a moat.
The Great Bifurcation: Integrated vs. Imperilled
Globally, the refining industry is splitting into two camps. Wood Mackenzie assessed 420 sites in 2025 and found 101, roughly 21 percent of global capacity, face closure risk by 2035. Of those 101, only 29 had any petrochemical integration.
China added 40 million tonnes of ethylene capacity between 2020 and 2025, 70 percent of global additions. Europe will exit 4.3 million tonnes by 2027. Japan's utilisation has plunged below 70 percent. The survivors are the integrated.
India sits on the right side. National PII has risen from 7.7 to 13 percent, and every major refiner is now executing or planning an integrated complex at unprecedented scale.
The Rs 3 Lakh Crore-plus Buildout: India Inc.'s Chemical Arms Race
BPCL's CMD Sanjay Khanna told The Core that Project Aspire — the company's Rs 1.7 lakh crore, five-year strategic blueprint to diversify beyond fuel retailing into petrochemicals, green energy, and non-fuel businesses — as going "beyond fuels to power new industries."
A greenfield complex in Andhra Pradesh targets 35 percent PII. Bina is being expanded to 11 MMTPA with a 1,200 KTPA ethylene cracker for Rs 43,500 to Rs 49,000 crore.
Buying BPCL time and capital for the chemicals pivot is BPCL's recent margin recovery as Q3 FY26 GRM surged to $13.25 per barrel from $5.60, powering standalone profit to Rs 7,545 crore.
HPCL is building India's first integrated grassroots refinery-cum-petrochemical complex at Barmer in Rajasthan, now pegged at Rs 79,460 crore, with 26 percent PII. First product flows are expected by February 2026. Its Visakhapatnam Residue Upgradation Facility, commissioned in January 2026, deploys LC-MAX technology for 93 percent bottoms conversion and is projected to add $2.50 to $3.00 per barrel to Vizag's GRM.
Then there is Reliance. Its Oil-to-Chemicals, or O2C— the integrated unit that houses refining, fuel retailing through Jio-bp, and the entire downstream petrochemicals chain — segment is the largest such operation in India. O2C EBITDA rose 14.6 percent year-on-year to Rs 16,507 crore in Q3 FY26, driven by sharper fuel cracks and higher throughput of 20.6 MMT. Petchem spreads remain under pressure. The Rs 75,000 crore O2C investment pipeline, integrated with green hydrogen and carbon capture, is a bet on conversion over combustion at a scale no one else in India can match.
The demand arithmetic supports the buildout. India's per-capita petrochemical consumption is one-third the global average. Polymer demand grew 4.7 to 12.1 percent in FY25; petroleum product demand grew 2.2 percent. With nearly 6 million EVs already on Indian roads and Sahney now calling IOCL's retail outlets "energy hubs" rather than petrol pumps, the refinery of the future had better produce chemicals alongside fuels.
The Cycle Hasn't Turned Yet. The Capital Has Already Been Committed.
The Q3 FY26 results expose the central tension in this thesis. Refining margins have recovered sharply across the board. But petrochemicals remain in the red.
The pattern is unmistakable. Fuel cracks have recovered. Petrochemical margins have not. IOCL's petchem segment lost Rs 362 crore in Q3 while its petroleum products division earned Rs 16,836 crore. GAIL's petchem losses widened to Rs 483 crore even as its transmission business held steady at 50 percent operating margins. The chemicals cycle, weighed down by Chinese overcapacity, has not yet turned.
Wood Mackenzie projects the global capacity glut easing only after 2026. HPCL has seen cost revisions from Rs 72,940 to Rs 79,460 crore. These are not insignificant headwinds. But the Rs 3.5 lakh crore has already been committed. Paradip is under execution. Bina is funded. Barmer's refinery section is commissioning. The capital has been deployed ahead of the cycle, not in response to it.
India's structural advantages make the timing bet less reckless than it might appear. Its refineries are overwhelmingly complex and heavy-crude capable. The domestic demand runway for petrochemicals is long and steep. And, as Mukherjee observes, India is uniquely positioned as a chemicals export platform into Africa and other regions where ageing refineries are closing while demand grows.
A barrel burned in a car engine delivers transportation and exhaust. The same barrel routed through a steam cracker delivers polyethylene, polypropylene, PET, and intermediates for pharma, textiles, and electronics. Polymer demand is climbing 5 to 12 percent annually. The smart money is on the molecule. India's refinery bosses have made their bet. The cycle just needs to catch up.
