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Bullish About the Vadinar Refinery
Having begun the commercial production on May 1, 2008, the state-of-the-art Vadinar refinery in Gujarat has been beefing up its capacity to produce petrol and diesel suitable for use in India as well as advanced international markets. LK Gupta, MD & CEO, Essar Oil and C Manoharan, Head-Refinery, Essar Oil, share their plans on Vadinar refinery expansion and tapping the right markets for growth.

According to C Manoharan, Head- Refinery, Essar Oil, the Vadinar refinery has an installed capacity of 10.5 million tonnes. Within the very first year of commencing commercial production, the refinery registered an enhanced throughput that was significantly higher than its installed capacity. Currently, it is operating at 16 million tonnes per annum and post March 2012 will be operating at 18 million tonnes. This enhanced capacity will be achieved immediately after the completion of the Phase I expansion of the refinery, which will also increase the refinery complexity to 11.8 from 6.1 currently.

An optimisation project is also under way at the refinery that will further enhance the capacity to 20 million tonnes; completion of this project is expected by September 2012. Several of the new units that are being added to the refinery as part of the Phase I expansion have been commissioned.

These include the Isom (Isomerization Unit), AMU (Amine Regeneration Unit), HMU (Hydrogen Manufacturing Unit) and the SWS (Sour Water Stripper). The balance units, including the DHDT (Diesel Hydrotreater), SRU (Sulphur Recovery Unit), VGO-HT (Vacuum Gasoil Hydrotreater) and DCU (Delayed Coker Unit) will be commissioned by March 2012.

Post Expansion Plans
Gupta reveals that the completion of the expansion and optimisation projects will give the Vadinar refinery higher complexity and therefore the capability to process a higher proportion of heavy, ultra-heavy and acidic crudes. Post expansion, the consumption of ultra heavy crude is expected to increase from about 20 per cent currently to 60 per cent of the overall crude basket.

Post expansion, the product yield of refinery will also improve significantly both in terms of production of higher proportion of light and middle distillates·from 69 per cent currently to 78 per cent. In addition, the refinery will produce high quality Euro IV & V compliant gasoline (petrol) and gasoil (diesel). Post the Phase I expansion, the refinery will also be able to convert Fuel Oil, a low value product, into higher value gasoil, gasoline and VGO (Vacuum Gasoil). The company will continue to produce high margin Bitumen to capitalize on the growing infrastructure sector demand in India.

The Vadinar Refinery is all set to become a world-class refinery that is supported by scale, high complexity and low-cost operations. Post expansion, the refinery will be capable of producing Euro IV / BS IV and Euro V grade products for the domestic and international markets.

Raising Funds
The total cost of the expansion and optimisation projects is about Rs. 10,000 crore. The funds have been tied up completely with a mix of debt and equity. Almost all of this investment has already been made and we expect to complete the expansion project by March 2012 and the optimisation project by September 2012.

Tapping the Right Markets
The products slated after the completion of the expansion will include LPG, naphtha, Aviation Turbine Fuel (ATF), kerosene, pet coke, bitumen, petrol and diesel (meeting up to BS IV/Euro IV and Euro V specifications). Gupta feels that Essar is well positioned to retain their volumes in the domestic market in terms of sales to PSUs and bulk customers, who give them better product margins.

However, given the addition of new refining capacity, they do expect growth in exports in the near term. They have therefore honed their export strategy by leveraging on the global presence of our parent company, Essar Energy. They believe that export volumes will come down in the medium term with India once again likely to become deficient in refined petroleum products in the next three to four years.

Essar Oil is prepared to capitalise on this growth in domestic demand through long-term product and infrastructure sharing contracts with oil PSUs. They have renewed their three-year agreement with Indian Oil Corporation (IOCL), which requires Essar Oil to supply diesel, petrol, kerosene and ATF to IOCL from its Vadinar Refinery. It also entitles the company to purchase products from IOCL and gives the two companies the option of sharing each otherĘs distribution infrastructure.

Essar has similar product sale and purchase agreements with (Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). Further, the company has executed MoUs with cement manufacturers for supplying pet coke that will be produced by the Delayed Coker Unit (DCU) at the expanded refinery.

Export strategy
Essar Oil is planning to leverage on the presence of Essar Energy, its parent company, in East Africa and Europe, to push some of its products in these markets. The company is also exploring the option of sharing streams across Essar EnergyĘs other refineries (for instance, movement of VGO to Essar EnergyĘs Stanlow Refinery in the UK) to optimise its export realization. They are targeting Australia, New Zealand and northwest Europe for exporting high quality fuels.

For relaxed specification products, the target countries are Sri Lanka, Pakistan and Indonesia. Further, the company is exploring the opportunities for blending and storage of its products to upgrade / downgrade their quality to achieve better realization.

It is also aiming to increase the share of term contracts in the global product market to secure its export volumes.

Feedstock Linkages
Essar Oil will require around 85-90 million barrels of ultra heavy crude for the expanded refinery. A substantial part of ultra-heavy crude has been tied up with global suppliers through term and frame contracts.