Reliance to tighten grip on world fuel markets

‘Plants may run at more than 100 per cent capacity in 2010’

NEW DELHI/SINGAPORE: India’s top privately run refiner Reliance is expected to raise crude oil imports by about 22 per cent this year as it ramps up production at its giant complex, further stamping its mark on world markets.

To maximise profit margins with its sophisticated refining capability, Reliance Industries is also set to limit African crude imports this year in favour of Middle East grades, if light crude prices continue to strengthen against heavy-sour grades, traders and analysts said.



“I expect Reliance refineries to run at full steam, even if in between there is a small shutdown, they can easily run at about 65 million tonnes,” said a trader familiar with refining operations. Reliance declined comment on traders’ estimates.

This means that the company’s two refineries the largest facility in the world will run above their full combined capacity of 1.24 million barrels per day (bpd), higher than last year when its second plant began operating at full rate in the second half.

After the world first saw increasing flows from Reliance in the summer of 2008, with the start of its new 580,000 barrel-per-day (bpd) plant, this year will see the full blast of exports of high-value diesel and gasoline made from a diverse slate of the cheapest available crudes.

This will put pressure on weak Western refineries and arbitrage traders at a time oil demand is just starting to pick up, but is still in defensive mode, analysts said.

“It’s a powerful refinery, and if they get the right logistics, they can probably penetrate Western markets, gain market share and push some out of the market entirely,” said John Vautrain, senior vice president of Purvin & Gertz Inc.

The refiner’s 2009 crude shipments from Africa including Egypt and Sudan rose more than fivefold to over 200,000 bpd, making the continent its No. 2 supplier, overtaking Latin America. This is in line with a 74 per cent jump in total imports.

It bought crudes as varied as Cameroon’s Lokele, Chad’s Doba, Venezuela’s Corocoro, and China’s Penglai, while resuming Iraqi crude imports that it shunned in 2006.

Reliance for the first time imported Gimboa crude from Angola, which positioned itself as the fourth-biggest supplier, surpassing Venezuela. It also took crude from Gabon, Ivory Coast, Congo, Colombia, Ecuador, Syria and Yemen into its roaster.

Though Middle East crude remains Reliance’s main staple, OPEC supply cuts in end-2008 around the time the refiner started its new plant prompted it to turn to African crude to make up for the gap when Gulf grades became costlier last year.

This was made possible after the Brent-Dubai price spread, an approximation of the premium at which Atlantic basin light-sweet crude trades to Gulf heavy-sour grades, reversed into steep discounts three times last year, making some West African crudes cheaper, traders said.

The structure has returned to normal this year. The front-month Brent/Dubai Exchange of Futures for Swaps (EFS) for May rose to $2.50 a barrel on March 18, the highest since OPEC producers began record supply curbs.

Though the EFS has since eased to about $1.68, its premium continues to make Middle East crude attractive to Indian refiners, traders said.

“I believe they will definitely try to process more Middle East h




Though these almost halved the year-earlier levels, they exceeded market estimates and outperformed average Asian complex refining margins of $3.50 over the past year, and Reliance’s chief financial officer said the firm expected better refining margins in 2010.

Analysts also forecast margins to improve this year on the rebounding global economy, which is expected to stir moribund fuel demand, and on Reliance’s ability to capitalise on its crude processing flexibility.

Traders and analysts estimate Reliance’s margins to range between $7 and $10 a barrel, as its new export-focused plant can produce premium fuels to meet tighter Western standards.

Reliance has already stepped up fuel exports to Africa, the Middle East and Asia, while venturing further into the United States.

The focus on developing countries is crucial as the International Energy Agency (IEA) has raised forecasts for global oil demand based on growth in emerging markets, even as demand in Europe will weaken.

“What benefits the refinery the most is when it runs heavy, sour, cheap low-quality crude and produces almost nothing but gasoline, jet fuel and diesel,” Vautrain said.

“This is a year when Reliance will make good progress because the market is not in freefall anymore, now it is somewhat easier. Having low freight rates is favourable to them.”