India's Essar Oil is pushing ahead its plan to more than double its retail network as demand for auto fuels surges across the country, a move that would see the private refiner sharply reducing its oil product exports over coming years, the company's managing director Lalit Kumar Gupta said over the weekend.
The company has set a target of running 5,000 retail outlets by the end of fiscal 2017-2018 (April-March), up from the current 2,470 outlets, Gupta said. The expansion, which would be done at a cost of Rupees 21 billion ($314.5 million), would help Essar command a 6%-7% share of the domestic oil products market.
Once the retail network expansion is over, it would result in the company's oil product export share falling to about 20%, from the current 45%-50%, Gupta said. He was speaking during a visit to the Vadinar refinery on the western coast.
India's overall oil products demand rose 6.2% year on year to 15.65 million mt, or 4.1 million b/d, in June, data from the Petroleum Planning and Analysis Cell showed. Over the January-June period, oil products demand was up 11.1% at 97.62 million mt, or 4.2 million b/d.
Analysts are optimistic about the potential for strong growth in India's oil demand over the near to medium term. They believe that even though India may not witness strong double-digit growth for oil products, it is expected to be close to around 7%-8%, or slightly higher.
Gupta said Essar would be able to improve its gross refining margins over the next 2-3 years, once the value maximization program at its Vadinar refinery was completed.
The company has plans to invest around Rupees 12 billion to upgrade its naphtha hydrotreater and isomerization unit, in addition to setting up units to recover sulfur and high-value products like propylene.
"This incremental improvement will be added to the current average GRM of around $10/b by March 2018," Gupta said. "Our ongoing drive to maximize operational capability will start giving targeted results from fiscal 2018-2019 onwards," Gupta said.
He added that the incremental addition to the margins would help to boost earnings from its refining operations by Rupees 8 billion. The projected GRM for the quarter ended June 30, 2016, stood at $10.29/b.
HEAVIER CRUDES
Essar operates a 400,000 b/d refinery in Vadinar on the west coast of India, the second largest privately held refinery in India, after Reliance Industries' Jamnagar plant. Vadinar has a Nelson Complexity Index of 11.8. It has the capability to process around 85% of heavy and ultra-heavy crudes and produce Euro 4 and 5 grades of oil products.
"We have been able to modify our crude blend to process higher quantities of ultra-heavy and High Acid (TAN) crudes, and increase the production of high value distillates," said Essar's Director (Refinery) Chakrapany Manoharan.
Essar has a portfolio of onshore and offshore oil and gas blocks, with about 1.7 billion barrels of oil equivalent in reserves and resources.
Last year, Essar agreed to sell a 49% stake in its flagship oil refinery to Rosneft, under which the Russian oil major will supply 10 million mt/year crude over a 10-year period to the refinery.
"The details of the stake sale are taking place at the group level," Gupta said, but declined to provide details.
Following the integration, the joint venture would be looking at expanding capacity to 25 million mt/year, which would include production of 1 million mt/year of propylene and polypropylene, Rosneft said earlier this year.
The Essar Group's decision to sell the stake to Rosneft is part of its strategy to restructure an estimated Rupees 880 billion of debt. By selling the stake to Rosneft, the group aims to mop up around Rupees 420 billion, analysts have said.
Gupta declined to comment on the timeline for arrival of Russian crude at the refinery, as the formalities were still being worked on.
He, however, said the company was in talks to buy West Karoon oil from Iran. Essar has been one of the biggest Indian buyers of Iranian crudes alongside Mangalore Refinery Petrochemicals Ltd., even when sanctions on the Middle Eastern country were in place.
Commenting on the outstanding dues to Iran for crude imports during the sanctions period, Gupta said: " The backlog is getting settled. There is no restriction to carry out trade."
