NEW DELHI (Dow Jones)
India's Essar Oil Ltd. is likely to delay the completion of its $6 billion refinery expansion as the global economic slowdown hits availability of credit and crimps demand for petroleum products worldwide, a senior company executive said.
The Mumbai-based company had earlier planned to boost capacity in two stages at its refinery at Vadinar in the western state of Gujarat to 34 metric million tons per annum by December 2010 from the existing 10.5 mmtpa.
Essar Oil, part of a diversified conglomerate Essar Group, now expects to complete only the first phase of expansion to 16 mmtpa by June 2010, the executive said, declining to be identified. Falling demand, triggered by the global economic slowdown, is forcing refineries across the world to operate at lower capacities, and has resulted in oil prices plunging by around $100 a barrel.
"Looking at the present slowdown, volatile economic scenario and fall in demand, we may well have to rethink on 34 million tons capacity expansion," the Essar executive told Dow Jones Newswires in a recent interview.
He didn't elaborate.
Essar Oil, however, said in a recent email that its "expansion plans are not on hold."
Falling demand for petroleum products globally has prompted the Organization of Petroleum Exporting Countries to cut output by 4.2 million barrels a day between September to December.
The first phase of expansion to 16 mmtpa would cost about $1.8 billion, and the second about $4.8 billion, the company said.
The entire debt required for the project has been tied up, and the company has the possession of the additional land required, it said.
The funding pattern for the project comprises debt of $4.5 billion and equity of $1.5 billion.
"The problem, however, is that some of the financial institutions and banks appear bit hesitant when it comes to releasing this money due to the global meltdown," said another Essar Oil executive, who asked not to be identified.
The first stage of capacity expansion will involve de-bottlenecking and addition of new units to enable it to process sour or "heavy" crudes, bottom upgrading units such as delayed coker, and required treating units to produce Euro IV and Euro V grade fuels.
The second phase of expansion will comprise a parallel train of 18 mmtpa capacity, including a new set of distillation units, all secondary units and another coker.
Essar Oil also plans to raise the complexity of its existing refinery from 6.1 now to 12.8 post-expansion.
Refinery complexity refers to the plant's ability to process and convert crude with higher sulfur content to cleaner-burning fuels, which are more expensive.
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