June 2, 2008 at 3:50 pm #3597
New India refinery could squeeze margins globally
Bloomberg News / June 2, 2008, 9:56am
By Dinakar Sethuraman
Reliance Petroleum’s new refinery in India may lead to lower margins on gasoline and diesel for refiners in Europe and the U.S. when it starts production this year, a report said.The 580,000-barrel-a-day Jamnagar refinery, a unit of Reliance Industries, India’s most valuable company, will increase global output of both gasoline and diesel by about 1 percent while adding 0.7 percent to global refining capacity, Bernstein Research said in a report today.
”Its massive scale and high complexity will mean it is likely to have a significant impact on global product markets,” said Neil McMahon, an analyst, in the report e-mailed today. ”It will be a harbinger of the changes to come in the refining industry over the next five years as other greenfield export refineries are constructed in the Middle East and Asia.”
The $6-billion refinery, which Bernstein called the world’s sixth-largest, is being built adjacent to a 660,000-barrel-a-day plant owned by Reliance Industries and is scheduled for completion by December this year. The combined facility will be the world’s biggest refinery, according to the parent.
Over the next five years, new, export-led refineries in Asia and the Middle East will add 4 percent in capacity annually, outpacing a 1.9 percent growth in demand a year for light products, including gasoline and diesel, the report said.
Refining margins are currently ”unsustainably low” and should rise in the short term into the peak of the driving season in summer, McMahon said, citing Valero Energy Corp., the largest U.S. refiner, as its ”top refining pick.”
Reliance’s refinery, in which Chevron owns 5 percent, benefits from capacity additions because of its scale, complexity and flexibility to supply any market that offers the highest price, the report said.
The refinery is able to process lower cost, high sulfur, heavy crude grades, turn them into premium, low sulfur fuels and ship them at lower transport costs because of its location close to the Arabian Peninsula, the report said. At $10,300 a barrel of capacity, the venture costs about half as much to build as other projects in the Middle East and elsewhere, according to the report.
Reliance may export gasoline and alkylate to the U.S. West Coast in summer and to Asia in the winter, while supplying low sulfur, less polluting diesel to Europe, the report said. The refinery has a complexity of 14 on the Nelson scale and technology that enables it to produce high quality fuels and shift production among products based on market prices.
”This combination of scale and complexity will be unique in the refining industry,” McMahon said. ”It will easily be the largest refinery for this level of complexity.”
June 2, 2008 at 3:53 pm #6813
Here is update on Reliance Refinery Expansion & although many of the details are correct the conclusions may not be. The Reliance expansion is just part of a huge petrochemical complex expansion & the demands for the ethylene feedstock on petrochemical side really put emphasis on the “may” (making it an economical choice) for gasoline & diesel exports …. rather than the “has to” implied by comments on supply capacity overshoot. Additionally it is not a given that refining margins will rise – a great deal of crude cost are driven by speculation not demand & peak demand like memorial day driving in US is ramping down gasoline price, demand and refining margins which are priced closer to fundamental demand price levels and not speculation level fuels prices compared to elsewhere.
The same thing is true for the “doubling” of petcoke production – the project is also adding a petcoke fired power plant that will eventually consume not only the 6-8,000 tpd from the expansion but some of the current petcoke production as well.
The $10,300/Bbl capacity addition for Reliance may be half as much for Mid East & other areas but does not put the new Reliance capacity at advantage against existing US refineries that are only expanding heavy residual capacity, have better complexities in the 14-24 range and not adding equivalent “new grassroots venture cost” capacity.
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