Your browser does not support JavaScript!

Transitioning to Blue Hydrogen: The Future of the Domestic Oil Refining Industry

General Report March 25, 2025
goover

TABLE OF CONTENTS

  1. Summary
  2. Current State of the Domestic Refining Industry
  3. Emerging Trends: The Rise of Blue Hydrogen
  4. Opportunities for Growth and Innovation
  5. Strategic Recommendations for Stakeholders
  6. Conclusion

1. Summary

  • At a critical juncture in its development, the domestic oil refining industry is undergoing significant transformation, driven by emerging trends such as the rise of blue hydrogen. This shift is reshaping operational frameworks and strategic approaches within the sector. As of early 2025, the industry's landscape is influenced by the confluence of low oil prices and the increasing adoption of sustainable practices, setting the stage for a transformative period of growth and innovation.

  • The domestic refining sector, comprising 19 public-sector refineries, 3 private refineries, and 1 joint venture refinery, possesses a total refining capacity of approximately 256.816 million metric tonnes per annum (MMTPA). This reflects a robust expansion from 215.066 MMTPA in April 2014, indicating the industry's capability to cater to both domestic needs and international markets. However, this expansion occurs amid fluctuating global oil prices, which present both challenges and opportunities, requiring industry stakeholders to navigate a complex economic environment.

  • As the sector grapples with the economic repercussions of low oil prices—where profit margins are heavily influenced by the costs of crude oil versus finished product sales—there is a growing focus on operational resilience and profitability. This document probes the implications of blue hydrogen, which emerges as a viable solution for reducing carbon footprints while leveraging existing natural gas infrastructure. The transition is supported by substantial advances from domestic oil companies, highlighting initiatives aimed at integrating hydrogen production into their operational models and reinforcing their commitments to decarbonization.

  • In summary, this analysis crystallizes the imperative for stakeholders to embrace innovation, particularly through investments in blue hydrogen technology and operational efficiencies, ensuring a sustainable and competitive future for the domestic refining industry.

2. Current State of the Domestic Refining Industry

  • 2-1. Overview of the domestic refining industry

  • The domestic refining industry is a critical component of India's energy infrastructure, contributing significantly to the country's energy security and economic development. As of early 2025, India has 19 public-sector undertaking refineries, 3 private-sector refineries, and 1 joint venture refinery, with a combined refining capacity of approximately 256.816 million metric tonnes per annum (MMTPA). This capacity represents a significant increase from 215.066 MMTPA in April 2014, highlighting the sector's expansion and capability to meet both domestic consumption and export demands.

  • Historically, the petroleum industry in India dates back to 1867, when the first oil well was drilled in Digboi, Assam. The establishment of major refineries, such as the Jamnagar Refinery, positioned India as a major refining hub in Asia. The sector has continuously evolved, driven by technological advancements and policy reforms, allowing for increased investment and modernization of facilities. The refining sector not only underpins various economic activities but also supports ancillary sectors such as petrochemicals, logistics, and manufacturing.

  • 2-2. Economic impact of low oil prices

  • Recent trends have shown that low oil prices are impacting the domestic refining industry in varied ways. For example, Brent crude prices fell below $70 per barrel due to oversupply concerns and geopolitical tensions. Despite this, sectors reliant on oil, such as the downstream oil companies, are experiencing some benefits due to decreased raw material costs, which can improve their profit margins. This price volatility is essential for refineries that purchase crude oil, as margins heavily depend on the differences between crude costs and finished product sales prices.

  • The combined operating losses of major refiners such as SK Innovation, GS Caltex, S-Oil, and HD Hyundai Oilbank exceed 14 trillion KRW during periods of low demand—partly stemming from global economic slowdowns. In contrast, the fourth quarter of 2024 saw a rebound in refining margins, indicating recovery as demand began to stabilize. The industry anticipates that the reduction in global economic recession will be crucial for restoring profitability moving forward.

  • 2-3. Operational challenges faced by major refiners

  • Major domestic refiners are grappling with numerous operational challenges that impact overall performance. The pandemic's aftermath has altered product demand patterns, leading to significant operational losses in previous quarters. The refining margins, which serve as a crucial indicator of financial health, showed signs of recovery, averaging around $4.1 per barrel, aligning closely with breakeven points after struggling to maintain profitability.

  • Further complicating the landscape, fluctuating foreign exchange rates impact refining operations significantly since the domestic industry imports over a billion barrels of crude oil annually. For every increase of 10 won in the USD-KRW exchange rate, the industry faces an incremental foreign exchange loss of approximately 100 billion KRW. Refineries are adjusting their operational models, focusing on non-refining ventures such as sustainable aviation fuel and bio-based marine fuels to diversify income sources amid ongoing economic uncertainties.

3. Emerging Trends: The Rise of Blue Hydrogen

  • 3-1. Definition and benefits of blue hydrogen

  • Blue hydrogen refers to hydrogen that is produced from natural gas through a process called steam methane reforming (SMR), combined with carbon capture, utilization, and storage (CCUS) technology. This process captures the carbon dioxide emissions generated during hydrogen production, thereby reducing its carbon footprint. Blue hydrogen is considered a significant stepping stone toward achieving lower greenhouse gas emissions, offering a more eco-friendly alternative compared to traditional gray hydrogen, which lacks carbon capture capabilities and contributes to high CO2 emissions. One of the primary benefits of blue hydrogen lies in its ability to utilize existing natural gas infrastructure and production facilities, significantly lowering initial investment costs compared to green hydrogen, which relies on renewable sources like solar or wind energy. Moreover, with estimated production costs of around $2.5 to $3.0 per kilogram by 2025, blue hydrogen provides a more economically viable option in the short term than green hydrogen, which currently costs around $6.8 per kilogram. This cost-effective nature positions blue hydrogen as a crucial player in transitioning to a sustainable energy landscape while maintaining industrial growth.

  • 3-2. Key initiatives by domestic oil companies

  • Domestic oil companies are increasingly recognizing the strategic importance of blue hydrogen in their future operations. SK Innovation, for instance, has made substantial advancements in its hydrogen production capabilities, operating a liquefied hydrogen plant that utilizes by-products of natural gas refinement. This facility has seen a significant increase in production, with an annual output of 35,000 tons of blue hydrogen made possible by improved carbon capture efficiency of 89%. Such initiatives not only enhance the company’s environmental profile but also position it well within the evolving energy market. Similarly, HD Hyundai Oilbank is spearheading efforts with its 'Hydrogen Dream 2030 Roadmap,' aimed at creating a comprehensive hydrogen value chain encompassing production, distribution, storage, and utilization. This initiative seeks to bolster hydrogen's role within the broader context of evolving energy systems in South Korea. Furthermore, GS Caltex has entered strategic partnerships to further its CCU capabilities, emphasizing collaboration with research institutions to enhance efficiency in capturing and utilizing CO2. These initiatives collectively reflect a robust commitment by domestic oil companies to embrace blue hydrogen as a core aspect of their decarbonization strategies.

  • 3-3. Impact on carbon neutrality and new growth drivers

  • The rise of blue hydrogen is poised to significantly impact the pursuit of carbon neutrality across various sectors, particularly in the domestic refining industry. As organizations strive to meet their sustainability goals, the transition to blue hydrogen not only aids in reducing carbon footprints but also opens up new growth avenues within the hydrogen economy. Given the government’s ambitious target of increasing the share of carbon-free energy sources in power generation to 13-15% by 2050, blue hydrogen stands to play a vital role in meeting these regulatory expectations while ensuring industrial competitiveness. Economists and energy analysts suggest that investing in blue hydrogen technology also serves as a critical driver for future growth opportunities in the refining sector. By pivoting toward carbon capture and sustainable practices, companies can better adapt to market fluctuations and the increasing demands for cleaner energy solutions. The dual focus on environmental responsibility and operational sustainability aligns with broader consumer preferences and regulatory pressures, effectively positioning the domestic refining industry for a resilient future amidst the challenges posed by traditional refining operations. As such, the incorporation of blue hydrogen not only supports carbon neutrality efforts but also exemplifies strategic foresight in navigating the complexities of the transitioning global energy landscape.

4. Opportunities for Growth and Innovation

  • 4-1. Potential benefits of low oil prices for downstream companies

  • The recent decline in oil prices has created a unique set of opportunities for downstream companies within the oil refining sector. As reported in the Economic Times, lower oil prices result in decreased input costs for industries reliant on oil-based products, thereby enhancing profit margins and instilling investor confidence across various sectors. This scenario is especially beneficial for oil marketing companies (OMCs) and other downstream players, as they stand to gain from improved marketing margins stemming from the falling prices. For instance, every dollar decrease in oil prices reportedly boosts gross marketing margins on automotive fuels by approximately 50 paisa per litre. Such enhancements not only help these companies manage operational costs but also provide leeway in addressing under-recoveries associated with essential products like liquefied petroleum gas (LPG). Further, as a net importer of crude oil, sustained lower oil prices could dramatically reduce India’s import bill, fostering a more favorable economic landscape despite ongoing global trade tensions. Additionally, the potential for stock market gains is bolstered as investors react positively to the improved financial outlook for downstream firms. The Nifty 50 index, a barometer of Indian equities, notably increased by over 1.9% in early March, correlating with the drop in oil prices. For downstream companies, the strategic response to these favorable shifts might involve reinvesting savings into enhancing competitiveness within the refining market and exploring new revenue streams.

  • 4-2. Innovation within refining processes

  • Innovation represents a fundamental pillar upon which the future of the oil refining industry must be built, especially as firms aim to adapt to the dynamically shifting energy landscape marked by low oil prices and the rise of blue hydrogen technology. The global oil refining market is projected to grow significantly, reaching approximately $3,751.5 billion by 2030, spurred by the pressing need for modernization and efficiency. Strategic upgrades and expansions of existing facilities are crucial to fulfilling burgeoning demand for refined products, particularly as industries shift toward lighter petroleum products and comply with stringent environmental regulations. Current technological advancements, particularly those involving catalyst development and process optimization, not only enhance operational efficiency but also mitigate environmental impacts. Companies are increasingly investing in digitalization efforts, leveraging technologies such as artificial intelligence and machine learning to streamline refining operations. This not only reduces costs but also improves product yield and quality, positioning firms advantageously in a competitive market. More broadly, tailored research into refining processes aimed at reducing carbon emissions aligns closely with global sustainability goals, driving innovation that dovetails with necessary environmental adjustments. The emphasis on clean fuels, especially in context with evolving regulatory landscapes, propels refiners to innovate not just within their processes but also in the dialogue surrounding energy consumption. The shift towards renewable energy sources and alternative fuels, including hydrogen, presents opportunities for existing refineries to diversify their product lines while simultaneously addressing consumer demand for greener energy solutions.

  • 4-3. Future market demand for refined products

  • Looking ahead, the demand for refined petroleum products is anticipated to witness significant growth, primarily fueled by expanding industrialization and increasing populations, especially in regions like Asia-Pacific. According to Allied Market Research, lighter petroleum products are becoming increasingly important as environmental concerns push consuming markets towards cleaner alternatives. This evolution necessitates not only a reassessment of product lines but also an investment in technology to meet new specifications and quality standards potentially mandated by forthcoming legislation. As developing economies strive to reduce dependence on imported petroleum products, local refining capabilities will become increasingly critical. This trend involves a dual responsibility for refining companies: to enhance capacity while ensuring that environmental benchmarks are not only met but exceeded. The refining market is expected to thrive through a combination of new investments in efficiency and sustainability practices, closely aligning operational outputs with customer expectations for low emission and high-quality products. Furthermore, as sectors such as transportation and petrochemicals continue to expand, refined products will remain indispensable. The oil refining industry's response should involve a proactive approach to market research and the agility to adapt to evolving consumer preferences—both of which necessitate an investment in innovative technologies to drive growth. Emphasizing scalability and adaptability in refining practices will ultimately support enhanced market positioning as demand trajectories evolve.

5. Strategic Recommendations for Stakeholders

  • 5-1. Investing in blue hydrogen technology

  • The transition to blue hydrogen represents a pivotal shift in the domestic refining industry, one that stakeholders must strategically embrace. As identified in recent reports, domestic oil companies are exploring blue hydrogen as a viable solution to achieve carbon neutrality while simultaneously securing growth opportunities. For instance, SK Innovation has made significant strides by integrating carbon capture, utilization, and storage (CCUS) technologies, thereby enhancing the eco-friendliness of their hydrogen production processes. With the global hydrogen market projected to reach approximately $411 billion by 2030, it is crucial that stakeholders allocate resources towards research and development of blue hydrogen technologies, which can streamline operations and improve sustainability metrics. Moreover, ongoing investments in infrastructure are essential. As seen in SK Innovation's establishment of a liquefied hydrogen plant capable of producing 30,000 tons annually, expanding production capabilities will allow firms to meet rising demand. Allocating funds to develop advanced hydrogen production frameworks, such as those aimed at increasing the efficiency of carbon capture processes, will also yield substantial long-term benefits. As firms venture into this domain, they must also take lessons from global counterparts to understand successful blue hydrogen models and adapt those insights to the local market.

  • 5-2. Enhancing operational efficiencies

  • In an era characterized by fluctuating oil prices and tightening margins, enhancing operational efficiencies is paramount for refining companies. The recent performance metrics indicate that major refiners have struggled with errors in profit expectations; for example, the refining segment saw an average decline of 6.2% across the top three refiners, illustrating the urgency for operational improvements. Stakeholders should focus on adopting lean manufacturing principles and optimizing supply chains to mitigate costs further. One strategy might include revitalizing refining processes through the integration of digital technologies and data analytics. For instance, predictive maintenance technologies can significantly reduce unplanned downtime, leading to more consistent operations. Companies like GS Caltex are already engaging with innovative practices involving CCUS, showcasing that enhancing operational efficiency must go hand-in-hand with sustainability initiatives. By prioritizing technological upgrades, stakeholders can not only improve profit margins but also align their operations with environmental regulations, creating a dual advantage of efficiency and compliance.

  • 5-3. Collaborating with industry partners for innovation

  • Collaboration within the industry is increasingly essential as stakeholders navigate the complexities of the energy transition. The evidence suggests that partnerships can drive significant advancements in technology and operational capabilities. A notable example includes GS Caltex's collaboration with the Korea Institute of Chemical Technology for a CO2 capture and utilization project, which exemplifies the potential of inter-company agreements to amplify innovation and develop scalable solutions. As the refining industry simultaneously pursues initiatives related to blue hydrogen and carbon management technology, it is vital that stakeholders actively seek strategic partnerships, not only with other refiners but also with academic institutions and technology providers. By fostering an ecosystem where knowledge is shared and resources pooled, companies can accelerate their transition to sustainable practices. This collaborative approach will ultimately lead to more robust business models capable of adapting to market dynamics while positioning themselves as leaders in the sector.

Conclusion

  • The pivot toward blue hydrogen signifies not only a strategic opportunity for the domestic refining industry but also a necessary evolution towards carbon neutrality. As the landscape of energy production and consumption continues to evolve, proactive engagement in innovative technologies and sustainable strategies will serve as a cornerstone for securing long-term profitability and resilience in this sector.

  • In light of the current trends, industry leaders are advised to enhance their focus on the integration of carbon capture, utilization, and storage technologies alongside expanding hydrogen production capacities. The favorable economic attributes of blue hydrogen, coupled with reduced initial investment costs, suggest that stakeholders can position themselves significantly ahead of the curve in facilitating a cleaner energy transition. As the demand for environmentally responsible energy solutions grows, the capabilities to adapt to these emerging trends will define the competitive dynamics within the refining market.

  • Furthermore, collaboration among industry partners will be paramount. By establishing synergies with academic and research institutions, along with technological innovators, stakeholders can accelerate the development and scaling of sustainable practices. This collaborative ethos emerges as a crucial enabler for achieving both financial performance and environmental objectives within the evolving landscape of the oil refining sector.

  • It is anticipated that as the domestic refining industry embraces these transformative changes, it will not only contribute to the global efforts toward sustainability but also solidify its role as a leader in the future energy landscape, characterized by operational excellence and ecological responsibility.

Glossary

  • Blue Hydrogen [Concept]: Hydrogen produced from natural gas through steam methane reforming combined with carbon capture, utilization, and storage (CCUS) technology, aimed at reducing carbon emissions.
  • Steam Methane Reforming (SMR) [Process]: A method used to produce hydrogen by reacting natural gas with steam, which is then often paired with carbon capture technologies to minimize carbon emissions.
  • Carbon Capture, Utilization, and Storage (CCUS) [Technology]: A set of technologies designed to capture carbon dioxide emissions produced from the use of fossil fuels in electricity generation and industrial processes, allowing for its utilization or storage instead of releasing it into the atmosphere.
  • Refining Margin [Concept]: The difference between the cost of crude oil and the selling price of refined products, which indicates the profitability of a refinery.
  • Liquefied Hydrogen [Product]: Hydrogen that has been cooled to a liquid state, allowing for more efficient storage and transportation.
  • Hydrogen Dream 2030 Roadmap [Document]: An initiative by HD Hyundai Oilbank outlining a comprehensive strategy for developing a hydrogen value chain from production to utilization by the year 2030.
  • Downstream Oil Companies [Company]: Firms that are involved in the processing and sale of oil products, including refining and distribution.
  • Oil Marketing Companies (OMCs) [Company]: Companies responsible for the marketing and distribution of petroleum products to consumers.
  • Economic Times [Document]: A leading financial newspaper that reports on economic and financial developments, including trends in the oil market.

Source Documents