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Indian Oil Corporation (IOC), the state-owned fuel retailer, expects its largest and newest east coast Paradip refinery to outperform benchmark Singapore Gross Refinery Margins (GRMs) in the third quarter ending December.
“The reported GRM for the Paradip Refinery, is $4.05 per barrel and the normalized GRM, which is after excluding the inventory impact, is $5.44 per barrel. The GRM appears to be low because of the utilization – for the average utilization for the quarter is still not 100%, it is at 88%. The capacity utilization makes all the difference,” A K Sharma, Director-Finance at IOC told analysts at a conference call.
GRM is the difference between price of crude oil price and total value of petroleum products produced by the refinery. GRM is one of the parameters which indicate the physical performance of a refinery. Normalised GRM accounts for the gross refinery margin excluding the inventory gain or loss.
Paradip refinery posted a capacity utilization of 88 percent for the first quarter ended June 2017 and is expected to run at 100 percent capacity from the second quarter of the current fiscal which is expected to boost the bottom line of IOC and improve the overall GRM of the company. Also, with Paradip being a coastal refinery, its inventory is expected to account for lower inventory losses.
Replying to a question on the possibility of Paradip’s GRM outperforming Singapore GRMs and posting a GRM of around $10-$12 per barrel, Sharma said the refinery will post the anticipated GRMs after it starts processing heavy crude beginning third quarter.
“It is actually running on the high sulfur crude only, but then the next quarter onward, it will start processing the heavy crudes. And once this happens, the real outcomes of the Paradip Refinery, it will start emerging. So, maybe you may have to wait for one more quarter. It will continue to post the GRM, but then the GRMs of the kind which are anticipated will come after heavy processing which is expected in the third quarter,” Sharma said.
Asked when the refinery will reach GRMs of $10 - $12 per barrel, Sharma said: “We are targeting it should be – logically, it should be happening so. Even now the normalized Paradip GRM is $5.44 per barrel. Singapore is only $6.4 per barrel.”
Paradip refinery has been configured to have a nelson complexity index of 12.2, second highest in the country. The nelson complexity index indicates the ability of a refinery to process heavy crudes. With Paradip refinery reaching average capacity utilization of 100 percent from second quarter, coupled with a high nelson index configuration, the refinery will be able to source cheaper heavy crudes leading to increased profitability, improved crack spread and higher GRM.
The company also informed it plans to invest Rs 20,000 crore as capex in the current financial year of which Rs 4,500 crore will go for the refinery segment, Rs 1,900 crore for pipeline, Rs 6,000 crore for marketing and Rs 3,000 crore towards Exploration and Production activities.
At the company’s 58th Annual General Meeting, Chairman and Managing Director Sanjiv Singh revealed the company’s plan to invest Rs 1.8 lakh crore over the next 5-7 years in asset creation, up-gradation of refineries and its petrochemical projects. Also, with the petrochemical segment contributing to approximately a quarter of the company’s profit, IOC plans on investing around Rs 32,000 crore more in its petrochemical projects, of which Rs 3,150 crore will be invested in the Polypropylene unit being set up at its Paradip Refinery.
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