Indian government-backed gas supplier GAIL is looking to set up an ethane cracking plant, reported Reuters citing sources.

The new Rs400bn ($4.9bn) facility will be built near GAIL’s liquefied natural gas (LNG) import plant in the Western part of the country.

Companies in India are increasing their petrochemical production capacity as the country’s growing economy increases demand for products such as plastics, paints, and adhesives.

Ethylene is an essential product for manufacturing plastics, and it is produced by cracking ethane.

Indian Oil, a leading refiner, has estimated that the demand for petrochemicals might increase threefold by 2040, necessitating large investments by entities to establish new facilities.

According to a source, the company is looking for a site in Dabhol, Maharashtra to set up the 1.5 million tonnes a year (mtpa) cracking facility.

GAIL already operates a 5mtpa LNG plant at Dabhol.

It plans to import feedstock ethane for the plant from the US, the source added.

“We are trying to sort out challenges around acquiring land, most likely, in or around Dabhol … we are hoping to receive financial support from the state government,” the source was quoted by the news agency as saying.

If a deal in Dabhol is not signed, GAIL is weighing the possibility of buying land in Madhya Pradesh, a neighbouring state of Maharashtra.

The planned cracking plant will have the ability to process liquefied petroleum gas (LPG) by up to 40%, providing the flexibility to switch to cheaper feedstocks for increased profits.