Reliance pipelines put IOC's market share at risk

Vol 7, PW 11 (13 Aug 03) Midstream & Downstream
     

Indian Oil had better watch out! Its carefully thought out plan to continue dominating the lucrative northern India market by denying direct market access to Reliance products risks running aground.

Instead, it will now have to fight hard to defend its market share. In a well-thought out move, Reliance has completely turned the tables on Indian Oil.

Look to Reliance's plans to lay the 1,580-km Jamnagar-Patiala pipeline and the 2,540-km Jamnagar-Kanpur pipeline from its 27m t/y Jamnagar refinery to the northern and central Indian markets for the reason why. "This is a clear signal from Reliance that it will directly send products to both north and central India," says an industry source.

"Reliance's Jamnagar-Patiala pipeline will emerge the key driver of this strategy. It will change all the rules of the marketing game." Reliance's move is in reaction to Indian Oil's plan to deny it access to the northern market after 2004 when the marketing agreement between both companies expires.

At the core of Indian Oil's strategy was conversion of its Kandla-Bhatinda petroleum products pipeline into a crude oil carrier. Currently, this is the only pipeline to carry petroleum products from Jamnagar or Kandla (imports) to the northern market and Reliance is using it to pump in 5m t/y of petroleum products to the northern market.

Without this pipeline, Reliance will be cut off from the northern India market. Aware of this, IOC last year announced that from 2004 the Kandla-Bhatinda pipeline will be converted to carry crude oil to its 6m t/y Panipat refinery whose capacity is now being doubled.

Of course, IOC said it would, extend the Koyali-Sidhpur products pipeline to Sanganer to provide alternative access to north India. "There was an informal understanding that Jamnagar products will not go north and IOC's Koyali products will not go to central India," says our source.

"In exchange, Reliance and other oil PSUs were to buy IOC products from Panipat and IOC will buy Reliance products for central India."