Essar Oil UK turns around Stanlow Refinery

Close to five years after its acquisition of Royal Dutch Shell Plc’s loss-making Stanlow Refinery in England, Essar Oil UK has successfully completed the first phase of the turnaround with the refinery posting $187 million net profit for the fiscal 2015-16.

The net profit is one of the highest-ever for the 60-year-old refinery and it has come despite its nameplate capacity being cut by Essar Oil UK after its acquisition.

“Having nameplate capacity is not as important in Europe as having efficient operations. We never bought the plant because of its 12 million tonne per annum refining capacity,” said Naresh Nayyar, Executive Chairman, Essar Oil UK.

He added that when the company took over operations in fiscal 2011-12, the refinery had negative earnings before interest, tax, depreciation and amortisation of $17 million.

In fiscal 2015-16, this has become a positive $340 million, said Nayyar.

In 2015-16, the refinery operated at around 200,000 barrels per day, producing nearly 16 per of the UK’s transport fuel and serving the key markets of Liverpool, Birmingham, Manchester and other parts of north-west United Kingdom.

In 2011-12, before Essar took over the refinery it operated at 210,000 barrels per day.

One of the keys to the turnaround was the shutdown of a crude distillation unit, which brought down the nameplate capacity but significantly improved margins.

Better yields The company exited the lubes, fuel oil and bitumen business due to this shut down.

"We have basically optimised refinery configuration to deliver better yields," Nayyar said.

He added that higher margin yielding petrol and diesel production has been increased.

The refinery is also processing 25 new crude oil variants, including some heavy crude, which is rich in sulphur.

Refinery margins improve This has been enabled since it has started using natural gas after Essar Oil’s acquisition and also shunned Shell’s policy of relying only on North Sea grades of crude oil.

As a result, the refinery’s gross refining margins have improved.

Nayyar said the improvement has been to the tune of $3 per barrel since Essar Oil’s acquisition.

“From having a gap of about $2 per barrel to the North West Europe benchmark current price GRM, we have opened up a gap of about $5 per barrel. The next target is to have our GRM above our cash breakeven, so that we can secure the refinery’s sustainable future,” said Nayyar.

Upgradation of units While he ruled out capacity expansions, despite the refinery having land to expand upon, Essar Oil next plan of growth for the Stanlow Refinery includes upgradation of more units and more cost optimisation across operations.

One such optimisation will come later this year when contract with Shell on crude sourcing and product sales at pre-determined prices come to an end.

(The writer was in the UK at the invitation of Essar Oil)

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