Vol 3, PW 15 (18 Aug 99) Midstream & Downstream

Theres a report circulating that Reliance Petroleum plans to increase capacity at its Jamnagar refinery to 40m t/y from present capacity of 27m t/y.

Talk to Reliance and they will neither confirm nor deny it but inquiries by this report reveal the company has deliberately planted the story among journalists "to scare of competitors": other companies that wish to set up rival refinery projects. "The focus now is on consolidating Jamnagar", writes a source with close links to Reliance, "The refinery has not yet started full capacity production, so it is quite foolish to even assume any expansion".

That said, the scare tactics have worked and Reliance may be doing India a favour by alerting the oil ministry to the lunacy of approving fresh greenfield refinery projects. Officials used to point gleefully to a staggering gap between supply and demand to justify foreign investment in Indias refinery sector.

That argument has now been turned on its head. By April this year, India had an installed refinery capacity of 67.55m tonnes.

By April next year, the figure will have jumped to 103.55m tonnes (Source: Oil Coordination Committee). This is due principally to the commissioning of Reliances own 27m t/y refinery.

Reliance is fast discovering a situation of over-supply, a situation which can only get worse if more refineries come on stream. This is best illustrated by the refusal of Bharat Petroleum and Hindustan Petroleum to sign a marketing deal with Reliance to offtake 50% of Jamnagars petro products.

In an over-supply scenario, even the PSUs can afford to be fussier than usual. Reliance may now have to sell its surplus product abroad at "distress rates".

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