Essar Oil to complete Vadinar Phase I expansion by early 2012

The Ruias-controlled Essar Oil, which had been working towards building a refining capacity of a million barrels per day (bpd), plans to bring its expanded Vadinar refinery on stream by the first quarter of 2012.

“We have so far completed 92% of Phase I and hope to start phase-wise commissioning by October. By the first quarter of 2012 calendar year, the entire 18 million tonne per annum (mtpa) will be up and running,” said Naresh Nayyar, chief executive officer, Essar Oil. Vadinar’s current capacity is 300,000 bpd (14 mtpa).

He said the commissioning of Phase I will give the company major boost towards achieving the targeted refining capacity of a million barrels a day.

With Vadinar Phase I on stream, Essar Oil will have a total refining capacity of 730,000 bpd comprising 375,000 bpd at Vadinar, 80,000 bpd at its Kenyan refinery and 300,000 bpd at Stanlow, UK, refinery which the company acquired in May.

“Going forward, we need to have an additional refining capacity of over 300,000 bpd, which will come from Phase II expansion at Vadinar,” he said.

However, he did not give any guidance as to when the company planned to embark on the second phase citing unfavourable market conditions. “We are still working on it and nothing has been decided yet. We have not even approached any bankers to assist us in fundraising for Phase II,” Nayyar said.

After 18 mtpa, the refinery will start a debottlenecking programme which will increase its capacity to 20 mtpa, or 405,000 bpd. The 18 mtpa expansion will also increase the complexity of the refinery from 6.1 currently to 11.8, which would enable the unit to refine low quality crude and convert it into high quality petroleum products.

Pradip Mirchandani and Neil Gupte, analysts with brokerage J P Morgan, said in their latest report that with Asian demand remaining strong, diesel spreads are likely to stay elevated in the coming months. With the refinery expansion of Essar expected to be completed by the second quarter of the current fiscal, the rise in complexity is expected to enable Essar Oil to earn higher refining margins going forward.

The Vadinar refinery posted a gross refining margin of $7.38 per barrel for the June quarter, a 27% jump from $5.79 per barrel for the quarter ended June 2010.

The company returned to black in the quarter ended June 2011 by posting a net profit of ¤469 crore as against a net loss of Rs70 crore for the June 2010 quarter.

Essar Oil also posted a 37% jump in gross revenues to Rs16,478 crore for quarter ending June 2011 over the year-ago period figure.
Nayyar said the company will soon commercially starting its Raniganj coal bed methane block and has also tied up with
customers.