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Thursday, April 1, 2010

Reliance to tighten grip on world fuel markets

India’s top privately run refiner, Reliance Industries Ltd, is expected to raise crude oil imports by around 22% this year as it ramps up production at its giant complex, further stamping its mark on world markets.Powerful refinery: Reliance Industries’ Jamnagar refinery in Gujarat. To maximize profit margins with its sophisticated refining capability, the firm is set to limit African crude imports this year. AFP To maximize profit margins with its sophisticated refining capability, Reliance Industries is also set to limit African crude imports this year in favour of West Asian 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 bpd plant, this year will see the full blast of exports of high-value diesel and petrol 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 and Gertz Inc.The refiner’s 2009 crude shipments from Africa including Egypt and Sudan rose at least fivefold to over 200,000 bpd, making the continent its No. 2 supplier, overtaking Latin America. This is in line with a 74% 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.Though West Asian crude remains Reliance’s main staple, supply cuts by the Organization of the Petroleum Exporting Countries (Opec) 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 (Rs113) a barrel on 18 March, the highest since Opec producers began record supply curbs.Though the EFS has since eased to around $1.68, its premium continues to make West Asia crude attractive to Indian refiners, traders said.“I believe they will definitely try to process more Middle East heavy crude because we do not expect light-heavy differentials to maintain at these levels,” said Sushant Gupta, a senior analyst with energy consultancy Wood Mackenzie.“They are expected to widen from current levels and Reliance will go back to its old strategy of processing heavier crudes and discounted crude so that they can get the advantage of complexity of their refineries.”At a time of slow global demand during the deepest recession of the post-War era, Reliance still managed to obtain refining margins of $5.90 a barrel in the December quarter of fiscal 2009, as it diversified its crude sources and markets for its products.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.

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