Jamnagar fire may halve Reliance refining output

Reliance Industries was likely to take a hit of almost Rs 1,200 crore due to a fire in one of the vacuum gas oil hydrotreater units at its Jamnagar refinery early today, said industry analysts.

Reliance Industries' Jamnagar refinery has a capacity of 660,000 barrels per day and with one of the two vacuum gas oil hydrotreaters out of action for 10-15 days, production was expected to come down by half, sources said.

It would particularly hit Reliance Industries' export commitments of gasoline, diesel, jet fuel and of some polymer products. Diesel and gasoline comprised nearly 40-45 per cent of the company's total refined product exports of $5.5 billion during the first six months of the current financial year ending September 30.

According to a Reuters report from Singapore, "Gasoline markets may firm while high-sulphur crude prices (may) slide" if the vacuum gas oil hydrotreater requires lengthy repairs.

The vacuum gas oil hydrotreater unit, which is believed to have been completely gutted in the fire, removes sulphur from crude oil and passes it on to a fluid catalytic cracker unit, which in turn produces gasoline and olefins, which feed the petrochemical units at the Jamnagar refinery.

Due to the fire, the complex may not be able to run its downstream petrochem plants of paraxylene-PTA and polypropylene.

According to sources in Reliance Industries, imports of low sulphur sweet crude oil are being thought about, but that may not help Reliance Industries reach full capacity immediately.

The removal of the damaged plant and construction of a replacement is expected take more time than predicted by the company.

Reliance Industries, which posted a net profit of Rs 2,709 crore on an income of Rs 28,496 crore for the quarter ended September 30, exports diesel and gasoline mainly to SAARC countries and to countries in the north African region.

Though Reliance Industries Chairman Mukesh Ambani told Petroleum Minister Murli Deora there would be no production loss, according to a PTI report, government sources said the shutdown of the hydrotreater unit would result in a shortfall of 120,000 tonnes of liquefied petroleum gas supplies to the domestic market, a small fraction of the overall projected demand of about 12 million tonnes this year.

But the government is taking no chances and has asked state-owned Indian Oil Corp to tie up import of about 100,000 tonnes of liquefied petroleum gas.

The fire was not likely to result in the shortage of other fuels as the shortage might be supplemented by imports, Petroleum Secretary MS Srinivasan told a television channel.

Although Reliance Industries' stock is expected to open weak on Thursday, when the market reopens after a two-day holiday, stock market analysts said the market might not react sharply to the fire at the Jamnagar refinery.

"The stock may open a bit weak tomorrow but...the market may treat this as a minor blip," said Shriram Iyer, head of research for Edelweiss Securities.

Another analyst, requesting anonymity, said: "A two-week shutdown should not be a problem. Net losses may not have a significant impact on the bottom line as the company has insurance cover for the cost of repairs. But it is too early to say what will be the impact on the next quarter numbers as the actual extent of the fire is not known. So the market may move either way tomorrow."

Analysts also said the company had a good record in accident and disaster management and might manage to minimise losses from the fire. They pointed out that while the market had been expecting a loss of close to Rs 300 crore when the refinery shut down last quarter due to floods in Gujarat, the company posted a net loss of Rs 34 crore on that account.

"They have a good record in accident management, that is another reason the impact may be cushioned," said an analyst.

The share prices of Reliance Industries fell 0.63 per cent to close at Rs 1,194.15 on the Bombay Stock Exchange on Monday. The stock registered a combined trading volume of Rs 28,056 lakh on both the bourses.