Essar Oil UK, which owns British refinery Stanlow, is currently in the early stages of a major strategic review which will prepare its business for the changing global policy environment, and help re-orientate itself in the push towards electric vehicles and away from the internal combustion engine.
“We know that there is going to be a big impact on transportation fuel and as a refinery that is leaning more towards transportation fuel and limited petrochemicals we want to make sure we are not left behind when the technological changes hit,” said S Thangapandian, Chief Executive Officer of Essar Oil UK, in a conference call. The company reported an 18 per cent growth in gross revenues for the six-months ended September.
Governments across the world have announced ambitious plans to shift road transport away from the internal combustion engine, and towards electric vehicles, in a move that will have major implications for a host of associated industries. While India aims to have electric cars by 2030, Britain has said it would ban the sale of petrol and diesel cars by 2040.
Currently petrochemicals account for around 6 per cent of Essar Oil UK’s produce, and jet fuels for around 15-16 per cent, but Thangapandian expects the balance to shift in the future following the strategic review. “The focus is to convert these transportation fuels that might hit a peak in demand in 15/ 20 years and make sure we are having a longer product lifespan in the market…jet and petrochemicals that have a longer life,” he said.
A small team had begun work on the project on the past four to five months, and a full-fledged study is set to commence by 2018. “By December 2018 we will have a much clearer idea on what we are looking at, the costs,” he added.
Thangapandian said the half-year results were boosted by the ongoing enhancement of the current price gross refining margin (prompted by ongoing changes made by the company to its crude slate and efficiencies) to $11 a barrel versus $7.6 a barrel in the same period a year ago, as well as positive currency trends (the weakness of the pound, in which the company incurs most of its expenses) and strong market conditions.
Essar Oil UK, which currently supplies 16 per cent of Britain’s road transport fuel demand, earlier this year announced it would be pumping in $250 million into capex and maintenance at Stanlow, which it acquired from Shell in 2011, taking the total investment to date by the company into the refinery to over $800 million. “We have built a business in a strong position, with no long-term debt and a valuation of $1.15 billion,” he said.
In addition to the capital investment, the company has been widening its product slate, and increasing its supply of jet fuel to local airports (as well as directly to airlines), as well as increasing its petrochemical output.
The company is also on course to build a retail network. It is targeting 400 largely dealer operated Essar branded stations in the next five years, with 46 already in place.