Essar Oil will rejig product mix to boost profit margin

Company plans to convert its fuel oil output into higher grade products like gasoline and pet coke:

ESSAR Oil, a leading private oil refiner, is planning to boost its profit margins by restructuring its present product mix. The company plans to convert the entire fuel oil from its refineries into higher-grade products, like gasoline and pet coke, according to senior company officials.

A senior company official told Financial Chronicle, “We plan to convert the majority of fuel oil produced from our refineries into gasoline and other value added products after the completion of the phase I of expansion by March-June quarter of financial year 2011-12. The intention is to mitigate the negative margins on fuel oil from exports,” he said.
“The pricing of the valueadded products and total amount to be exported would depend on the market environment and the gross refining margins prevalent at that time. In general the export price varies according to tenders and is calculated on a five day average price formula, that is 2 days prior and 2 days after the loading of cargoes,” he said.
The company at present produces around 2.8 million tonne per annum (mtpa) of fuel oil, which is roughly 21 per cent of the total production. Besides that, the total gasoline produced is around 2.38 mtpa around 17 per cent of the total production.
Essar plans to reduce the fuel oil production to 3.3 per cent after the first phase of expansion, and further reduce it 1.5 per cent after the second phase of expansion, which will be over in financial year 2013-14, the official said. On the flip side, production of value-added products like Gasoline and Jet fuel would increase to 25 per cent and 11 per cent, respectively after the second phase of expansion.
The company expects 9 mtpa of gasoline production after the second phase of expansion, with Euro IV and Euro V constituting the major chunk of the production at 37 per cent and 50 per cent respectively.
"Of the total gasoline produced, around 80,000 kilo liter to 90,000 kilo liter is used in India and the rest is exported. We will continue to use part of the gasoline produced even after the conversion of fuel oil," another official said.
Apart from the shift to high yield products, Essar also plans to have higher flexibility between light and middle distillates and flexibility in producing petrochemical feed stock. "The Euro IV & V grade would constitute about 87 per cent of the gasoline pool and 78.4 per cent of the Diesel pool," the official said.