June 21, 2012:

India's surplus capacity in oil refining is set to grow exponentially and become a major foreign exchange earner. Can it be sustained?

India’s petroleum sector may be consumed by debates over the costs of imported fuel, but there is one section of the industry that has reason to cheer rising global oil prices: refineries. As an increasingly green-conscious western world starts closing old, polluting refineries, developed countries like India and China are seeing a rapid expansion of capacity and, with it, forex-earning potential. Indeed, India currently enjoys a surplus of refining capacity of about 70 million tonnes, a figure that has steadily increased since the year 2000.  The country currently has 22 refineries with a total capacity of 213 million tonnes. By 2017, the country will add another 97 million tonnes, taking total refining capacity to 310 million tonnes. Additions are expected from IndianOil (15 million tonnes at Paradip, another project of similar capacity project is being considered along the western coast, an addition of 4 million tonnes in Koyali and 3 million tonnes in Mathura), Nagarjuna Oil (6 million tonnes at Cuddalore), and private sector Essar Oil (2 million tonnes at Vadinar), among others.

Considering an annual growth of six to seven per cent to the domestic demand base of 148 million tonnes, the country will be requiring an additional 9 million tonnes annually every year — leaving plenty of refining capacity to spare.  But unlike other industries, no one is dismayed by this over-capacity. That’s because of the overseas, forex-earning demand potential that refineries offer. Domestic restrictions on fuel prices have meant that private refiners like Essar and Reliance Industries (RIL) export their entire capacity, mainly to Asian markets, Europe and North America. Increasingly, public sector refiners have been doing the same to offset the losses from selling domestic fuels — exports now account for around 10 per cent of their sales. With no new capacity coming up in Europe and several refineries being phased out, Indian refiners have seen their export market grow sevenfold over the past 10 years. Most Indian refineries are new and, therefore, meet the norms and standards for exports to the West. As a result, petroleum and oil products account for 19 per cent of the country’s $303 billion exports, up from 3.8 per cent a decade ago and India has been a net exporter for the past 10 years.

“Petroleum products are the second-most exported product after engineering goods. But in the current fiscal alone, they may overtake engineering goods on account of rising exports and higher prices,” says Ajai Sahai, director general of the Federation of Indian Export Organisations. So much so that the government is seriously considering promoting India as a competitive refining destination to service the export market for petroleum products as well as integrating it with the petrochemical and chemicals businesses to produce and export higher revenue-generating value-added products.

India is not alone in expanding capacity. China, too, has spotted the opportunity and is, in fact, well ahead in terms of capacity, though not exports. In 2011, China’s total refining capacity was 459.8 million tonnes, of which the domestic market accounted for over 90 per cent. By 2016, China is expected to add 122.4 million tonnes, according to a recent report by New York-based business intelligence firm GlobalData. In 2010, China exported 29.4 million tonnes petroleum products compared to India’s 57 million tonnes. According to the report, China and India were among the top markets for refining in Asia-Pacific during 2011, with national oil companies having played a key role in the two countries’ refining markets. Asia-Pacific alone will witness the addition of 21 new refineries during 2012-2016, accounting for approximately one third of all refinery capacity additions planned across the world. China and India will lead the refinery capacity additions in the region during the period, with China scheduled to add seven refineries by 2016. Indonesia, Malaysia, Mongolia and Pakistan will also add two refineries each.

Volumes, though, are part of the story; it’s the margins that could be the big challenge going forward. Refining margins have been under pressure in recent times for refiners like Reliance owing to the narrowing gap between crude oil and product prices. RIL’s gross refining margins, which grew significantly from $6.6 per barrel in FY10 to $8.4 in FY11, were a flat $8.6 in FY12. With the recovery of the world economy still uncertain, refining margins are expected to remain under pressure in the near future. So the big question is how far this export market can be sustained, given slowing growth in Europe and growing domestic demand. According to GlobalData, increasing demand for refined petroleum products, especially in fast growing countries such as China and India, will grow the Asia-Pacific’s share in the global refining market. The share of the region’s refining capacity in the global refining capacity was 31.4 per cent in 2011, and is anticipated to increase slightly to 31.7 per cent by 2016.

The other issue is whether the trend towards cleaner fuels like shale gas and non-fossil fuel will impact the refinery business. Experts say this will take time. “From the Indian perspective, shale gas is still away and non-fossil fuels are not sizeable. On the export front, too, transportation fuel will continue to be dominant as shale gas in the US and Canada is mainly used for heating purposes,” said Sameer Bhatia, senior director, Deloitte Touche Tohmatsu India. In other words, India can build on a significant competitive advantage for some years to come.

By Business Standard

June 20, 2012:

Oil refinery workers from Essex facing redundancy have demonstrated at a meeting at the Department of Energy and Climate Change. Union officials and local politicians met energy minister Charles Hendry on Tuesday to discuss Coryton Refinery. The Unite union has attacked moves to start laying off 180 workers. The union said a buyer could be found for the site which went into administration when the owner, Swiss-based Petroplus, collapsed in January. Unite national officer Linda McCulloch said: "The workers at Coryton feel as though they have been led down the garden path by the administrators and let down by the government who continue to sit on their hands and refuse to offer state aid."These are skilled workers who have worked tirelessly to keep the refinery going and make it one of the most efficient in Europe.

'Declining demand'

"The closure of the plant would be a disaster for the workforce and the surrounding local economy."  About 180 jobs will be cut next week at the refinery, its administrator PwC has announced. The administrator has confirmed that while it continues to work with various parties which have expressed an interest in acquiring the Coryton site, it was highly unlikely that it would be sold as a refinery. Last week the government ruled out state aid for the plant, saying that "overcapacity in the refining industry and declining demand for petrol mean that it would not be sustainable for government to provide assistance". Speaking after the meeting, Mr Hendry said: "From the outset of this process, we have worked tirelessly with the administrator to find a way to secure a successful outcome for Coryton and to safeguard local jobs.

"It is extremely disappointing that the administrators have not found a buyer for the refinery, despite their strong efforts."

By BBC News

June 20, 2012:

Gulf Coast gasoline strengthened against New York futures as Phillips 66 (PSX) resumed routine operations at the Lake Charles refinery in Louisiana after a power loss. A partial electrical outage at the 240,000-barrel-a-day plant occurred on June 16, according to a National Response Center filing. Exxon Mobil Corp. (XOM)’s Beaumont refinery in Texas flared gases because of operating conditions within the plant. The discount for conventional, 87-octane gasoline in the Gulf Coast narrowed 0.5 cent to 7.88 cents a gallon versus futures traded on the New York Mercantile Exchange at 2:47 p.m., according to data compiled by Bloomberg. Prompt delivery dropped 3.58 cents to $2.5822 a gallon. The Beaumont refinery can process 345,000 barrels of crude a day. Kathleen Jackson, an Exxon spokeswoman in Beaumont, declined to comment on the incident. The same gasoline in New York Harbor weakened 0.63 cent to a discount of 3.88 cents a gallon to futures.

By Bloomberg

June 20, 2012:

York- Nearly two years after the Yorktown refinery stopped refining, the facility's new owner is reshaping the business with plans to expand its capabilities as a transportation terminal for fuels. Roy Lamoreaux, director of investor relations for Plains All American Pipeline and Plains All American Natural Gas Storage, said the company plans to renovate the facility's storage capacity as well as expand pipeline, marine and rail transportation capacity. The $35 million renovation and expansion project includes modernizing tanks, improving the piping infrastructure, expanding the rail facilities and making structural repairs and improvements to its dock. Houston-based Plains All American purchased the shuttered refinery and a segment of an oil pipeline in New Mexico in December for $220 million from El Paso-based Western Refining. Western closed the refinery in 2010 after it lost $60 million in a 12-month period. The closure resulted in the loss of about 230 jobs and an estimated $4 million in tax revenue over about two years for York County.

York County Commissioner of Revenue Ann Thomas said the terminal provided $4.6 million in tax revenue in 2011, but as of June 12 has paid only $1.21 million. Some of the loss is from idled machinery that can no longer be taxed under the county's machinery and tools tax. Plains All American is in the process of disassembling and selling the equipment.  At the time it closed the refinery, former owner Western Refining kept about 30 employees and continued to operate the facility's product terminal for shipping finished gasoline, diesel and other fuel products. Last year, prior to the sale, Western completed a project that connected the terminal to the Colonial Pipeline, which runs from Texas to New Jersey and pumps products from the Gulf Coast.

Under Plains All American's ownership the terminal serves as a staging point for supplying products like gasoline, diesel, butane, ethanol and crude oil to the Hampton Roads area as well as for further distribution and processing across the East Coast region. According to its website, Plains specializes in the transportation, storage and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas related petroleum products. Lamoreaux said in addition to the changes being made this year at the terminal, Plains is pursuing a larger scale expansion that could increase the number of employees. There are currently about 30 employees working at the facility.  "The full expansion is contingent on our being able to secure the necessary (state and federal) permits," he said. "Assuming we are able to complete the full expansion, we could potentially more than double the number of full-time or contract employees."

York County officials and supervisors are thrilled at the prospect of the former refinery growing as a terminal. Jim Noel, director of York County's Office of Economic Development, said while the county would have preferred to see it remain a refinery, any expanded use of the facility is welcome. Noel's office made attempts immediately following the sale to try to convince Plains All American to consider at least using part of the facility for refining. "We would have preferred to see it continue with refining because of the quality of employment and the tax revenue for the county, but if that's just not a viable business model anymore, so be it," Noel said. "We certainly want Plains to prosper." Noel said York County is working with the company on the expansion project.

"We want to do everything we can to support them," he said. "If they can expand and add employment and tax revenue, which they are doing, we are 100 percent behind them." York Supervisor Don Wiggins, whose district includes the terminal, feels that having a fuel transportation terminal near the coast of Virginia could be advantageous in the future. "If we are ever allowed to do off-shore drilling in Virginia that would be the perfect spot to bring crude oil in and pipe it out to wherever," he said. "We know we can't compete on the East Coast with refineries in the west, and the crude comes in by water from out of the country and so that's the perfect area because it's a deep-water docking terminal."

York Supervisor Chairman Tom Shepperd sees this initial expansion as shifting the former refinery into another business model. He said it's unclear what kind of additional tax revenue the expansion of the terminal might bring into the county or what the business will ultimately look like, but he supports developing the former refinery into a viable business. "It hurt to lose it," Shepperd said of the refinery. "Now the company is taking this new concept and moving away from the refining business and start morphing into a new business area with it."

With York suffering major losses from business closures in the last few years, including the refinery, an Altria smokeless tobacco plant and an impending closure of Dominion Virginia Power's Yorktown power plant, Shepperd said York has to be supportive of new businesses to help make up the lost tax revenue.  "We're going to encourage businesses in York County," he said. "It's just the logical thing to do."

By Daily Press

June 20, 2012:

WARRI – MANAGING Director of Warri Refining and Petrochemical Company, WRPC, Ekpan, near Warri in Delta State, Mr. Simon Ehiemua has expressed surprise that the  34-year-old plant was still working, notwithstanding its poor state. He however, gave kudos to the workforce. Ehiemua told Vanguard, “I was amazed when I took over in 2011 and saw the state of the plant. I was amazed because our people here were able to run the plant even in the state it was then”. His words, “If you go into the plant, you will be shocked that such a plant like this can run at all, but people are managing to make it work. The state of the plant is poor, but our people are striving to make it continue to work”.

He, however, said there was hope on the way, as the Federal Government had announced that funds would be provided for the rehabilitation of the plant, which was commissioned in 1978 by the end of 2013. Ehiemua added: “For Warri refinery, they have targeted that we will be in a state where we will be able to run more reliably by the end of 2013”. At the moment, Ehiemua disclosed, “Capacity utilization is 60 per cent and we are constrained to maintain that for various reasons other than the state of the plant. For instance, crude oil vandalism is constraining us on the quantity of crude oil we will get on a daily basis. Even if we have as much crude oil as we needed to run the plant, we will still have the constraint of evacuation mainly due to vandalism. The product pipeline from Warri to Benin, which is the major depot nearest to us here, is continually vandalized”.

“The product pipeline from Warri to Benin, which is the major depot nearest to us here, is continually vandalized. When we pump water through the line to flush it and prepare it for product, nothing happens, immediately we start sending product through the line, the product starts disappearing”, he added.

By Vanguard