Essar refinery expansion targets Africa and Mid East

Vol 11, PW 15 (29 Nov 07) Midstream & Downstream
     

India’s ambition to become a global refining hub moved a step closer this month with Essar Oil’s announcement of a $6bn plan to increase its Vadinar refinery capacity from 10.5m t/y to 34m t/y by 2010.

“Adding capacity to an Indian refinery is 50% cheaper than in the rest of the world,â€‌ Naresh Nayyar, newly appointed MD of Essar Oil, tells PETROWATCH. “Majority of the products will be exported but demand in India is growing so distribution at home will increasingly take a larger share of our production.

â€‌ Producing mainly petrol, diesel and kerosene, Essar’s expanded refinery will first target markets in India’s backyard: Pakistan, Sri Lanka and Bangladesh. “All the countries of the Indian sub-continent have a petroleum product deficit,â€‌ adds Nayyar.

“Africa has no refining capacity to speak of. Southeast Asia and the Middle East are potential markets too, followed by Europe and the US.

â€‌ With a high Nelson Complexity Index of 12.8, Essar’s expanded refinery will be able to crack the heaviest of crude varieties and is likely to focus on imports from the Persian Gulf, Venezuela and Mexico. Closer to home, Nayyar stresses it could also crack the waxy crude Cairn will produce from Barmer in Rajasthan.

“If the government relaxes its condition that Cairn must sell to a state-owned company,â€‌ says Nayyar, “we would definitely be keen.â€‌ Opinion is divided on the wisdom of Essar’s decision to triple refining capacity at this time.

One analyst believes the Mumbai-based group has cleverly identified a “window of opportunityâ€‌ between now and 2012-13 when Europe and the US experience a refining capacity shortfall, where demand for petrol and diesel outstrip supply. “Before 2012 global refining capacity won’t be enough to meet local demand,â€‌ he says.

“Reliance has made the same calculation.â€‌ Another analyst believes Essar will miss this “window of opportunityâ€‌ because by 2009 several new refinery capacity additions across the globe will come on stream.

“It will be like going from â€کfamine to feast’ in the petroleum products sector,â€‌ he says. Essar disagrees.

“Many of these capacity addition projects are on paper only,â€‌ stresses Nayyar. “Most of them won’t materialise.

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