Essar to invest $250 million in its UK refinery

Essar Oil UK is to invest $250 million in its British refinery Stanlow, a sign of its commitment to the British market in spite of challenges including Brexit and the government’s commitment to an electric future for vehicles.

The 2018 investment will enable Essar Oil UK to raise its annual production to 75 million barrels from the current 68 million barrels, increase its basket of crudes, and augment production of petrochemicals to 10 per cent. “This investment confirms the group’s commitment to remain in the oil and gas sector and grow the Essar Oil UK business,” said Essar Oil UK CEO S Thangapandian.

The business remains heavily focused on Britain, where it generates 85 per cent of its revenues, with the remainder of its product sold on the European mainland.

The company has invested over $800 million into Stanlow since acquiring it from Shell in 2011, enabling it to raise hydrocarbon margins by over $5 a barrel, increase petrochemical production by 10 per cent and add 37 crude items to its portfolio.

“This investment will further open up our basket and reduce crude costs, with a higher focus on high-yield products…you will see revenues improving, and margin gains from where we are today,” Thangapandian added.

The company has also over time reduced its North Sea dependence, from above 80 per cent to between 50-75 per cent.

He said the company, which supplies 16 per cent of the UK’s road transport needs, would continue expansion into the direct aviation fuel supply business, as it won contracts from Emirates, Etihad, Jet2.com and Oman Air, and would also continue expanding its own UK retail network. It currently has 36 retail outlets and plans to set up 400 branded retail stations within UK in five years.

While the collapse of the pound following last year’s referendum had led to a reduction of costs in dollar terms (to the extent of $40-45 million) the company remains cautious about the longer term impact of Brexit on business. “We are playing it day by day and seeing how things happen…there is no clarity on what is going to happen,” he said.

The company was reviewing how to meet the challenge to the sector of the “ambitious” targets set by Britain and EU countries to move towards electric vehicles — Britain aims to ban the conventional combustion engine by 2040. “We do see it as a big challenge in years to come…we have started internal discussions with a core team to look at how this will impact the petroleum sector and Stanlow, and are looking at moving from typical transportation to higher value added product.” Government policy had already begun to impact the demand balance away from diesel, which had previous seen strong growth, back to gasoline.

The announcement came as profits after tax fell to $168 million from $244 million for the year ending in March, as the industry benchmark fell by over $2 a barrel.

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