Page 134 - CW E-Magazine (16-7-2024)

Point of View

logistics. The shift has been a long time coming, but that is not surprising given it needed statutory approvals from several authorities despite
running only a short distance (underground) on public lands and is mostly overhead within the adjacent sites of the producer and consumer.
RIL, to its credit, brought its considerable engineering expertise to the task, and buoyed by the success of the initiative, is looking to replicate
this to the extent feasible. Talks are ongoing with another PEO consumer, also located at Dahej, but it will be another year or so before the
second pipeline is ready and operational.

While these efforts are welcome, it is important to recognise that not all PEO consumers are located conveniently for receiving pipeline
supplies. This is just the way the industry is structured currently. Also, rail supplies are challenging in the India context – unlike in much of
the developed world – partly due the fragmented PEO customer base. This means that tanker supplies by road will stay the dominant logistics
route for some time to come. And change is coming here too. RIL is now encouraging consumers (and their transport operators) to invest in
safer, double-walled PEO tankers to improve safety on roads. In these, the outer wall is made of carbon steel and the inner one of stainless
steel, with vacuum and perlite in between. These are typically 1.5-1.8x more expensive than conventional PEO tankers that now ply the roads,
but this is a cost that the consuming industry must not hesitate to bear, given the safety advantages offered.

If all goes well, the share of pipeline supply of PEO will augment from ~10% now and that transported in specialised tankers from ~5%.
Acquisition for integration
The third news item on the theme of PEO (see inside pages of this issue) relates to the planned acquisition by the Chemicals Business
of Godrej Industries Ltd. (GIL) of one of two ethoxylation units of Shree Vallabh Chemicals, located at Kheda (in Gujarat), about 80-km from
RIL’s PEO manufacturing site at Vadodara.

The acquisition cost has been pegged at Rs. 45-crore, for an ethoxylated products capacity of 24-ktpa, but the actual output will be
determined by the product slate planned. GIL may also need to augment the facility to meet its standards of safety, and this may call for
additional capex once the deal is done.

The acquisition – small by the size of the acquirer – is significant for a couple of reasons. For one, it makes up for a lack of ethoxylation
capacity within GIL, and when fully integrated obviate or at least significantly reduce the present need to toll manufacture ethoxylates. It will
also mark the entry of GIL into an area in which it has little expertise currently and provide a launchpad for a more aggressive play in ethoxylated
products that feed into diverse industries spanning from home and personal care (in which group companies have a substantial presence), to
industrial segments including agrochemicals and textiles.

The challenges for this deal stem from the fact that most ethoxylated products are commodities and margins are wafer-thin. GIL will face
some stiff logistical challenges when integrating this site into its operations. It will have to ferry feedstock (e.g., lauryl alcohol) to the site and
ship out its ethoxylate to the company’s existing sulphonation facility at Valia (Gujarat), a good 200-km away, and then to markets. How the
company optimises the production slate at the new site, will make all the difference for the viability of the proposed acquisition.

Growing demand for PEO
India’s implied PEO demand is currently about 420-kt, and about 300-kt of this is met by RIL alone. IGL meets another 70-kt, and the
balance is by imports of derivatives. In the past, RIL has scaled up production of PEO as the downstream industries have expanded and
believes it can further raise output to meet future demand.

While this is welcome, the geographical concentration of PEO merchant supply solely in western India is neither desirable nor sustainable.
Demand for PEO in India is set to grow at a CAGR of 7-9%, in line with historical growth trends, and new hubs of economic activity will demand
closer supply sources. PEO production should hence be on the product slates of the petrochemical projects now in the planning stage in Southern
and Eastern India, and those elsewhere when they are debottlenecked. Indian Oil Corporation, for example, has an MEG plant at Panipat, and
should be convinced (by potential customers keen to co-locate) to invest in EO purification column – a small investment in the context of the
overall monies ploughed into the site.

Ethanol-based PEO production also deserves a closer look, as the technology is readily available and its green credentials carry much more
weight than it did in the past at least in some consumer-facing industries such as home and personal care. Green ethanolamines, ethylene
amines and several other EODs are now commercially available as sustainable alternatives with significantly lower product carbon footprints
while delivering the same high quality and performance as their petro-based counterparts.
Ravi Raghavan

134 Chemical Weekly July 16, 2024

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