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Global refining margins are likely to continue to rise this year, amid rising demand and reduced refining capacity, said Mr Naresh Nayyar, Chief Executive of Essar Energy, as the firm reported a sharp increase in profits.
Crisis
The crisis in West Asia and the shut down of refineries in Japan following the earthquake have resulted in a sharp spike in refining margins, said Mr Nayyar.
“The level at which they are today is probably the highest level we have ever seen apart from the six-to-eight-month period we saw in the first half of 2008,” he told Business Line in an interview.
“We believe refinery margins will continue to improve going forward.”
While increased energy demand would play a role, an ongoing fall in global refining capacity was likely to contribute to higher margins, he said.
“Many of the small refineries with lower complexity in most mature markets are under pressure and they may get out of the system permanently — which will be quite positive for refining margin going forward,” said Mr Nayyar.
Essar Energy has defied concerns about the European refinery market — which has been exited by many of the oil majors — by moving forward with its $350-million acquisition of Royal Dutch Shell's Stanlow refinery in Britain.
Essar maintains that a combination of Stanlow's ability to produce high complexity product alongside shrinking supply in Europe as other refineries close down makes it a viable business.
The firm expects to sign the deal with Shell within 10 days, and beginning contributing to Essar Energy revenues by the second half of the year, said Mr Nayyar.
The firm also hopes to be able bring product from its Vadinar refinery to meet UK deficit.
A combination of higher refining margins, and additions to power capacity, will result in a rise in 2011 revenues over the previous year, said Mr Nayyar.
“The top line and bottom line will both definitely be higher,” he said.
While the firm remains focused on India, it will continue to seek opportunities abroad “both to plug the natural resource gap in India in areas such as coal, as well as to meet the needs of deficit markets,” said Mr Nayyar.
Coal buys
Australia, Indonesia and Africa are among the countries the firm is looking for coal acquisitions in.
Following the acquisition of the Stanlow refinery and a majority stake in a Kenyan refinery, the firm would continue to look for opportunities in “deficit markets” he said.
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