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Essar Oil to upgrade Vadinar refinery

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Hydrocarbon Engineering,

Essar Oil Limited’s 20 million tpy Vadinar refinery is looking at earning an additional US$1.50 (per barrel of crude) on its gross refinery margin (GRM) on the back of Rs.1600 crore of investments. The company has already invested Rs.400 crore during a 28 day planned shutdown of the refinery in September - October last year. A further Rs.1200 crore will be invested to make additional upgrades in the various refinery units over the next 2 - 3 years.

The shutdown or turnaround activity involved not just routine inspection and maintenance, but also entailed the conversion of the VGO-HT unit into a mild hydrocracker (MHC) unit and the setting up of facilities to process high acid (TAN) crudes. Ever since, the refinery has been able to convert its entire vacuum gas oil (VGO) production into higher margin products.

According to C. Manoharan, Director-Refinery, Essar Oil: “Post the shutdown, we have been able to modify our crude blend to process higher quantities of ultra heavy and high TAN crudes, and increase the production of high value distillates. This has enabled Essar Oil to improve its crude and product mix significantly, which is reflected in our financial performance.”

Over the next 2 - 3 years, Essar Oil will invest Rs.1200 crore to upgrade its naphtha hydrotreater (NHT), isomerisation unit, continuous catalytic reformer (CCR) units and also facilities for further recovery of sulfur to improve its margins.

Lalit Kumar Gupta, Managing Director and CEO, Essar Oil, said: “We are committed to making our refinery among the best in the world through efficient deployment of resources. We will take a path of safety and sustainability in reaching our goals. We believe in setting new benchmarks for the industry with our efforts. With the shutdown having been successfully completed, EBITDA and PAT in the current financial year is expected to be significantly higher because of the full availability of the refinery, stable crude oil prices, and our ability to optimally leverage on the investments in the MHC and high TAN facilities.”

Refinery margins at Essar Oil have remained continuously above the industry benchmarks. In the quarter ended 30 June 2016, the CP-GRM of US$10.29/bbl (unaudited) bettered the IEA margin for Singapore complex refineries by around US$6/bbl.

The shutdown and subsequent investment decisions were taken with an eye on the surging demand for petroleum products in India over the medium and long term. The Vadinar refinery currently produces about 9% of India’s refining capacity, and is also among the world’s most complex refineries. It has processed 91 types of crudes, including the dirtiest crudes available. In less than four years since its commissioning in 2008, the refinery capacity was increased from 10.5 million tpy to 20 million tpy, while the complexity was enhanced from 6.1 to 11.8. The refinery is capable of producing high quality Euro IV and V grade products. Its safety record is equally impressive – on 4 August 2016, the refinery has recorded 3046 (8.2 years) lost time injury (LTI) free days and 2631 (7 years) fire free days.

Retail operations

In 2003, Essar Oil became the first private company to enter petroleum product retailing in the country, when the government opened the sector to private sector refiners. The deregulation in the sector, which has been in force since October 2014, has breathed new life into private sector refiners’ retail plans. Essar Oil is on course to achieve a sustainable level of growth in this segment.

The company runs a network of 2470 operating retail outlets, while 2850 additional outlets are in various stages of implementation. Essar Oil has a target of reaching 4300 operational outlets by the end of FY16 - 17. The total capital investment in these outlets would be about Rs.2100 crore, which will be mostly infused by franchisees. Once completed, the retail operations will generate employment for about 20 000 people.

Adapted from press release by Rosalie Starling

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