Essar Energy eyes Shell network to sell Vadinar refinery products in Britain

The London Stock Exchange-listed Essar Energy is planning to use Shell’s distribution network in the United Kingdom to sell products from its Vadinar refinery in Gujarat.

Essar is close to buying Shell’s Stanlow refinery in UK for $350 million.

“Stanlow provides options for the export of high quality products to the UK from Vadinar,” said Prashant Ruia, vice-chairman, Essar Energy.

He said the company is currently evaluating the option of exporting products from the refinery and selling it using Shell’s strong distribution network in that country.

“On the downstream side, Shell has a 15% market share in UK and we can use this to sell gas oil,” said Naresh Nayar, chief executive officer, Essar Energy.

He said, once the Phase I expansion of Vadinar refinery is over, the company will be in a position to produce Euro IV and V grades of gas oil and gasoline. This could be marketed in the UK through Shell’s network.

According to Shell UK’s website, the company has five important dealers and a chain of 900 service stations through which it markets its products in the UK and Europe.

Nayyar said Essar is currently producing six million tonnes per annum (mtpa) of gas oil out of a total refining capacity of 14 mtpa. This will go up to 9-9.5 mtpa once the Phase I expansion is over.

“When this output is added with the outputs upcoming Bina and Bhatinda refineries, we can look forward to an overcapacity situation in the India,” Nayyar said, adding that a readymade market in UK is a good option.

Ruia, while discussing the company’s annual numbers, said the Vadinar refinery is nearing the finishing line on Phase I, which will lead to a jump in throughput from 300,000 barrels per day (bpd) currently to 375,000 bpd. This will also increase the complexity of the refinery from 6.1 to 11.8, there by allowing it to produce Euro grade fuel.

“Mechanical completion of the new refinery units will happen during second and third quarters and we will then commission these units from the third quarter, with most of the increased production coming onstream towards the end of the fourth quarter,” Ruia said, adding that the capacity will be up to 405,000 barrels by September 2012 due to the $380 million optimisation programme being implemented at the site.

On the $380 million acquisition of Stanlow, Ruia said Essar Energy has already concluded consultation with the employees of Stanlow and will sign the final deal with Shell in the next ten days.
“After this, the closing process will start and we will get the ownership by second half,” he said.

On February 18, Essar Energy and Shell entered an exclusivity agreement till April 1 for sale of Shell’s Stanlow refinery for $350 million. Besides, it was also decided that the two companies would enter into an exclusive five-year crude supply contract by Shell to Essar and into long-term agreements for the supply of products in the UK by Essar to Shell.