No Russia impact on crude availability, says CPCL MD Arvind Kumar

"As the economy is on the path of demand recovery post Covid, fuel consumption has also been picking up," said Kumar.

At a time when the Ukraine crisis is taking a toll on refineries due to a spike in crude oil prices, Chennai Petroleum Corporation (CPCL), a subsidiary of Indian Oil Corporation (IOC), expects the Iran sanctions to be lifted adding to the company’s profitability. The company’s Managing Director Arvind Kumar talks to Shine Jacob about the future of National Iranian Oil Company (NIOC) stake in the Chennai-based company, crude procurement strategy and its ambitious Rs 31,000-crore Nagapattinam refinery. Edited Excerpts.

Are you looking at a more diversified crude basket and what is your crude import strategy after the Ukraine crisis?

CPCL's crude basket consists of crude from diverse geographical locations and new crudes are being evaluated and added to the basket continuously based on the availability and economics.

At CPCL, a majority of the crudes processed are on term basis, while the remaining are indigenous crudes and imported crudes procured on spot. This is aimed at optimising assured term crude availability and opportunity to source cheaper crudes.

The term crude normally comes from the Middle East -- Saudi Arabia, Iraq and UAE -- and spot crude from Western African nations, and we have some agreement with the indigenous crude oil producers also. This includes ONGC’s Bombay High too. We are continuously exploring new routes and geographies like Latin America or other countries which will be available at a cheaper rate. Purchases are done through our holding company IOC. There is no Russia impact in terms of availability.

CPCL being a standalone refinery, it operates in B2B segment wherein refiners supply petroleum, oil, and lubricants (POL) to oil marketing companies at Refinery Transfer Price (the price paid by the OMCs to domestic refineries for purchase of finished petroleum products at refinery gate). Majority of the POL are marketed by our holding company IOCL and a few specialised products marketed directly by CPCL.

How do you see the future of the National Iranian Oil Company (NIOC) stake in your company?

Presently, Naftiran Inter-Trade Company Ltd (NICO), an affiliate of National Iranian Oil Company (NIOC), holds 15.4 per cent of the equity share capital of CPCL. NICO is a valued partner for CPCL along with IOCL. CPCL presently does not process Iranian crude due to sanctions on Iran.

Because of the sanctions, we cannot take crude from Iran. Positive things are happening in the world today and we hope that sanctions may be lifted and once it happens we may also think about crude sourcing from Iran based on the crude economics. Sanctions getting lifted will add to our profitability and ensure crude sourcing from another basket.

What is the status of the planned Rs 31,000-crore refinery at Nagapattinam?

The new 9 million tonne per annum (MTPA) refinery and petrochemical project at Nagapattinam has been approved by the governing body of CPCL and Indian Oil Boards. Gazette notification for land acquisition has been issued by the government of Tamil Nadu in September 2021. The zero date of the project has started on September 3, 2021 with a completion plan of 45 Months, around mid of 2025. All project consultants (EPCMs) have been lined up and Engineering, Contracting and Procurement activities are in full swing. We require roughly around 1,200 acres of land, of which 600 acres was already acquired.

This project is very important for CPCL since it provides much needed growth and will cater to increasing demand for petroleum products in the southern region. The above project also consists of a poly propylene unit which will provide petrochemical foray on JV mode.

Presently, we are concentrating on moderate sized projects in the existing 10.5 MMTPA Manali refinery at Chennai that will add value to our product mix. These include Pharma Grade Hexane and augmenting propylene production. CPCL being one of the Group-I lube base oil manufacturers in the country also intends to expand lube base oil by installing a production facility for group-II/ group-III Lube Oil Base Stocks.

What is your take on the current fuel pricing scenario and demand coming back on track?

Fuel pricing mechanism is based on international fuel prices, which fluctuate based on geo-political situation and crude/distillate inventories. Recent geopolitical conflicts have put upward pressure on oil prices. Prices are sensitive to concerns about supply disruptions due to geopolitical factors playing out currently.

Refining margins have improved substantially in the third quarter of FY2021-22. As the economy is in the path of demand recovery post Covid, fuel consumption has also been picking up. MS demand has surpassed pre Covid levels. Diesel demand is robust and the trend is expected to consolidate in the near future.

How did Covid impact your business and how are you seeing the recovery trend now, in terms of sales and revenue?

During Covid-19 pandemic's second wave CPCL sales and revenue got affected due to subdued demand for petroleum products. Currently, the demand has picked up and the refinery capacity utilisation is more than 100 per cent. MS demand has surpassed the pre-Covid levels. Diesel demand is robust and we are looking towards positive growth in the near future.

Mineral Turpentine Oil (MTO) has been recently added to CPCL product basket. We are also putting up a project for production of pharma grade hexane.

What is your strategy in taking forward the joint venture Indian Additives?

Indian Additives Ltd is a JV between CPCL and Chevron Oronite Company LLC. The JV has been performing well and has put positive results. We are looking at progressive trends in IAL and fully support their growth path.