Below are highlights from a speech given by Shashi Ruia, Chairman of Essar Oil Limited at the company’s 24th Annual General Meeting.
“Global refining industry continues to face several challenges in terms of weak demand, new capacity addition and dominating role of government in both exporting and importing countries. Over the next seven years, we expect about 5.7 million bbls of net refinery capacity to be added. While Asia and Middle East will account for about three fourths of fresh capacity addition, the region is expected to be balanced in terms of capacity growth and demand.
“Indian refining capacity, at 217 million tpy, is fairly balanced compared to actual demand after adjusting for fuel and loss, higher capacity utilisation and Special Economic Zone refinery. At 4 – 5% per annum expected growth rate, our surplus capacity will get absorbed in about the next three to five years. Future expansion, unless they are brownfield, are going to be extremely challenging given the issues relating to land acquisition.”
“The government has taken several encouraging policy decisions which has put a renewed optimism in the sector. We have seen government deregulate diesel prices and hike gas prices, which will benefit the country in the long run in terms of fiscal discipline and energy security.
“Over the last five months, we have seen benchmark Brent crude oil prices come down from the US$110 /bbl levels to about US$60 /bbl. This lowering of crude prices will help in managing our fiscal position and reduce inflationary pressures as India imports almost 80% of its crude oil requirements. I would also like to clarify that lower crude oil prices does not automatically mean lower refinery margins. Gross Refinery Margins (GRMs) are dependent upon prices of products, or what we call crack in our refinery terminology. Crack prices have however been generally holding steady.”
Operation and financial performance
“I am very happy to share that we closed Financial year 2013 – 14 surpassing the Rs1 lakh crore revenue mark. We continue to be amongst India’s top 10 companies by revenue, which we achieved in five short years in beginning our commercial operations. Record throughput of 20.23 million t aided by your company to report the highest ever gross revenues of Rs 1 07 190 crore for Financial Year 2013 – 14, which is an improvement of 11% over Financial Year 2012 – 13.”
“The refinery processed 93% of heavy and ultra heavy crude, normally available at a discount to benchmark grades, against 86% in the previous year. In spite of processed such a high proportion of tough crudes, we produced 84% of higher margin light and middle distillates.
“We have recently entered into an agreement with Russian energy major Rosneft for supply of crude oil and products, thereby fortifying strategic energy security of our refinery. With this, our crude basked will get more diverse, thereby reducing regional supply risks.”
Edited from speech by Claira Lloyd
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