Essar Oil plans Rs 1,600 cr investment in Vadinar refinery to boost GRMs

Essar Oil Limited plans for upgradation of its 20 MTPA Vadinar refinery with an investment of Rs 1,600 crores to earn an additional $ 1.50 per barrel (bbl) of crude on its gross refinery margin (GRM). While the company has already invested Rs 400 crore during a 28-day planned shutdown of the refinery in September-October last year, it will further invest Rs 1,200 crore to make additional upgrades in the various refinery units over the next 2-3 years.

The shutdown or turnaround activity involved not just routine inspection and maintenance, but also entailed the conversion of the VGO-HT unit into a mild hydrocracker (MHC) unit and the setting up of facilities to process high acid (TAN) crudes. Ever since, the refinery has been able to convert its entire vacuum gas oil (VGO) production into higher margin products.

Over the next 2-3 years, Essar Oil will invest Rs 1,200 crore to upgrade its naphtha hydro treater (NHT), isomerisation unit, continuous catalytic reformer (CCR) units and also facilities for further recovery of sulphur to further improve its margins.

Lalit Kumar Gupta, managing director and CEO of Essar Oil, informed, “With the shutdown having been successfully completed, EBITDA and PAT in the current financial year is expected to be significantly higher because of the full availability of the refinery, stable crude oil prices, and our ability to optimally leverage on the investments in the MHC and high TAN facilities.”

Refinery margins at Essar Oil have remained continuously above the industry benchmarks. In the quarter ended 30 June 2016, the CP-GRM of $ 10.29 per bbl (unaudited) bettered the IEA margin for Singapore complex refineries by around $6 per bbl.

The shutdown and subsequent investment decisions were taken with an eye on the surging demand for petro products in India over the medium and long term. The Vadinar refinery currently produces about 9 percent of India’s refining capacity and is also among the world’s most complex refineries. It has processed 91 types of crudes, including the dirtiest crudes available. In less than four years since its commissioning in 2008, the refinery capacity was increased from 10.5 MTPA to 20 MTPA, while the complexity was enhanced from 6.1 to 11.8. The refinery is capable of producing high quality Euro IV and V grade products.