Analysis: Indian refining’s opportunities
WASHINGTON, Feb. 21 (UPI) — Mittal Investment’s announced 49-percent stake in a state-run Indian refinery and reported plans by Chevron Corp. to expand its share in a private facility show a growing interest in the Indian refining sector.
On Tuesday Luxembourg-based Mittal agreed to a $725 million stake in India’s Guru Gobind Singh Refinery Ltd. refinery, which has a capacity of 180,000 barrels per day. Under the deal Mittal will own 49 percent of the refinery, state-owned Hindustan Petroleum Corp. Ltd. will own 49 percent, and the rest will be offered to financial institutions.
The 9 million ton, $3.78 billion refinery is likely to be commissioned by 2010 and is to be located in Bhatinda, in the Indian state of Punjab. It will handle heavy crude from South America and the Middle East, Indian news reports said. But plans are already afoot to widen the crude slate so the refinery can accept a wider range of crude that can be sold on the lucrative export market.
“The high-margin export market is what’s going to drive their margins up,” Ajith Murthy, a senior consultant at PFC Energy in Houston, told United Press International. “So they are certainly going to divert some of the products to the export market.”
India’s deal with Mittal comes amid speculation that Chevron will expand its stake in privately owned Reliance Petroleum’s proposed 27 million-ton, 580,000 barrels-per-day export refinery in Jamnagar, in the state of Gujarat, from 5 percent to 29 percent. Chevron bought the stake last April for $300 million, and under the deal it had the option of increasing its share to 29 percent. The $6 billion refinery is expected to begin operations in late 2008.
Chevron Chairman and Chief Executive Officer David J. O’Reilly refused to confirm the speculation.
“We are here for a few days … to visit the refinery under construction where we are a partner at Jamnagar,” he said in New Delhi Tuesday. “That is the primary purpose of the visit. We want to see the construction ourselves.
“We have an agreement with them (Reliance). If everything does well we will see further together. I can’t speculate on the timing,” he said.
Still, the announced deals and the trend in India to build large refineries are unlikely to have a short-term effect, experts say.
“Looking at what the demand for products are and what the current capacity is, there is a still a huge gap,” Murthy said. “All these (other refineries being planned or under construction) put together are going to increase the capacity, but still in five, seven years there won’t be a surplus, but after that there might be a surplus in terms of capacity for products.”
Murthy said, however, the refineries could still present a strong opportunity for overseas revenues.
“Clearly, foreign companies are seeing this as a great opportunity because the demand for product is increasing at a rapid pace,” he said. “India is certainly a good destination. There’s a market, there is potential for growth, and there is also this export component.”
And the entry into India may lead to greater opportunities for upstream activities and for exploration both in India and overseas.
Indian news reports said Chevron and Reliance may partner on the Krishna-Godavari Basin’s D6 deep-sea gas block, which is believed to hold 35 trillion cubic feet of reserves. And HPCL and Mittal are exploring overseas refining and marketing opportunities and are looking to bid for foreign oil and gas assets. They have formed a joint venture to bid on a 51-percent stake in the 9 million-ton refinery in Port Harcourt, Nigeria.
“This is a nice entry point to integrate later upstream,” Murthy said.
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