The Hindu Business Line : Reliance refining margins rise as light, heavy crude prices diverge

THE price variation between `heavy' and `light' crude which continues in the $8-$10 range in the international market - with the former being the cheaper variety — has helped Reliance Industries Ltd secure, in the current year, better profit margins on refining than other players who can handle only `light' crude.

The improved margins come on the back of RIL processing as many as seven new "opportunity" crude during the first nine months of the fiscal. In industry parlance that means cheaper varieties of crude that has few takers in the market and, hence, available at a lower price. During this period, the capacity utilisation of RIL's secondary processing units also continued to be high.

According to industry analysts, this points to the increased processing of not only the heavy and sour crude but a whole range of blends thereof. This is not something new, they point out, as markets for sweet and light crude were blending with heavy crude, as in the case of Iranian light crude.

RIL declined to give any details, saying it was no secret that Jamnagar refinery was equipped to handle heavy/sour crude. It was not as simple as switching from sweet to sour crude as the prices of the output also would be related, it said.

"At RIL, there is always a linear programming that is under way, based on the world crude prices and the product demand pattern. The return on the rather high investment made in infrastructure was paying dividends, especially when the delta between the price of sour and sweet crude was significant - a direct corollary of rising crude prices," an analyst said.

Refining margins for RIL's Jamnagar refinery has steadily risen over the first nine months of the fiscal. From a level of around $7.5/bbl in April 2004, it steadied at $8/bbl in the July-September period before jumping to $9.8/bbl from October through December 2004. Market talk is that RIL has been able to optimise its input-to-output production pattern during this period, and it could get better in the last quarter.

There are reports that OPEC producers are mulling a new 11-crude basket that would better reflect the group's denser supplies, which last year traded at more than $10 discount to light, sweet benchmark crude. The reference basket of crude comprises Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arab Light, the UAE's Dubai grade, Venezuela's Tia Juana and non-OPEC Mexico's Isthmus, most of which are light or medium-light.

Meanwhile, the market is also rife with talk that the RIL refinery is raising its capacity from its present level of 33 million tpa, something that is rubbished by RIL.

While talk of further de-bottlenecking of its two plants by 2 million tpa and even 4 million tpa has been doing the rounds, the latest one refers to a quantum jump in capacity, by 13 million tpa.

As per this theory, RIL is going in for more distillation columns and related fine-tuning in its plant and machinery whereby it will add another13 million tpa capacity by early 2006.

RIL says this is not the first time talk of Jamnagar refinery capacity enhancement has hit the market and other than the regular de-bottlenecking, there was nothing else happening at the refinery.

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