Reliance mulls third refinery at Jamnagar

Mukesh Ambani-promoted Reliance Industries Ltd (RIL) is evaluating a plan to set up its third refinery at Jamnagar in an ambitious project to reach a total capacity of 100 million metric tonne per annum (mmtpa), the largest at a single location in the world.

The company has appointed a global oil and refinery consultancy firm to evaluate the feasibility of the project, which will help capitalise the increased requirement for global crude distillation capacity.

RIL has a 33 mmtpa refinery at Jamnagar, which is the third largest at a single location in the world. The refinery's capacity is 22.6 per cent of India's total refining capacity.

The company is also setting up a second refinery near the existing one with a capacity of 29 mmtpa.

This export-based refinery is being set up under its subsidiary Reliance Petroleum Ltd (RPL) and is scheduled to be operational by the end of this year.

RIL will require a capacity addition of 38 mmtpa through its third refinery at Jamnagar to reach the 100 mmtpa capacity.

A senior executive of the consultancy firm that is evaluating the project feasibility confirmed that the company has such a plan but did not want to divulge details. An RIL spokesperson said no such plan was under consideration.

The evaluation for such a project is believed to be at a nascent stage and no concrete decision has been taken yet.

"It is still not clear; the third refinery would come under RIL, RPL or a separate subsidiary will be created," said a source familiar with the development, confirming the company's plan for the third refinery.

According to RPL's annual report for 2006-07, Paris-based International Energy Agency (IEA) estimates an additional global crude distillation capacity requirement of 580 mmtpa by 2011. The IEA is a governmental organisation that provides statistics about the international oil market.

The demand push has helped the gross refining margins (GRMs) sustain an uptrend in the last three years.

According to India Infoline Ltd, a Mumbai-based brokerage, RIL, with its complex refinery, has gained significantly by registering GRMs of $5-7/bbl above benchmark Singapore GRMs.

India has moved from the position of 19th largest refining country in the world in 1995 to the 5th largest now with a share of 3 per cent of global capacity.

Africa is the fastest-growing market for India's exports, followed by Latin America, Europe and East Asia.

"Refining margins are expected to remain strong in the near- to mid-term," said Ajay Arora, Partner, Transaction Advisory services, Ernst&Young.

Another Delhi-based analyst said that although the refinery margins will decline a little once the refinery cycle hits the downturn, RIL's track record of putting up complex refineries will ensure that the company's margins remain robust.

"RIL will always have margins which are a couple of dollars above the Singapore margins," said the analyst. The Singapore refinery margin is the regional benchmark.