Diverting Mumbai crude to Mangalore Refineries

Vol 7, PW 12 (27 Aug 03) Midstream & Downstream

Alarm bells are ringing at Indian Oil over the oil ministry's decision to divert a portion of ONGC's Mumbai High crude to its subsidiary Mangalore Refineries.

In June, Shastri Bhawan ordered that Mangalore Refineries will receive 1.81m tonnes Mumbai High crude in 2003-04 at the expense of supplies to IOC and Bharat Petroleum. Hindustan Petroleum, which also receives Mumbai High crude, is unaffected by the decision, and will actually see a hike in supplies of Mumbai High crude.

See below: Allocation of Mumbai High crude in 2003-04 to IOC, HPCL, BPCL Refineries 2001-02 2002-03 Proposed for 2003-04 IOC and subsidiaries 3.09m tonnes 3.36m tonnes 2.87m tonnes BPCL and subsidiaries 7.88m tonnes 8.48m tonnes 6.67m tonnes HPCL 2.06m tonnes 2.55m tonnes 3.15m tonnes MRPL Nil Nil 1.81m tonnes Total 13.02m tonnes 14.39m tonnes 14.50m tonnesTill last year, Mangalore Refineries received no Mumbai High crude as it was a joint venture between private sector Aditya Birla group and Hindustan Petroleum and was refining imported crude. This changed when ONGC bought a majority stake and management control of the 9.69m t/y refinery and convinced the oil ministry that it should be allowed to sell its own crude to its newly-acquired subsidiary.

Shastri Bhawan agreed, leaving IOC fuming. Last month, it wrote a five-page letter to the oil ministry detailing why supplies to its own refineries should be increased instead of reduced.

Central to IOC's argument is that Mangalore Refineries is designed to "economically and efficiently" process only high sulphur 100% Arab Mix crude and that supplying it with low sulphur Mumbai High crude would lead to under utilisation of various processing units. More worrying for Indian Oil is the widespread impact on its business interests if it is to live with lower Mumbai High crude at its Mathura, Chennai and Koyali refineries.