Running a refinery in North-East is fraught with challenges
How healthy are gross refining margins (GRMs) delivered by NRL? How well do you compare with GRMs achieved by other public sector refineries which rely on crude import?Fundamentally, GRM represents the “spread” or differential between price realisable from sale of products and purchase cost of crude oil and other raw materials. GRMs are also a measure of operational efficiency. NRL’s GRM in 2010-11 was $15.39 per barrel — among the highest in the industry.
Unlike other refineries which import most of their crude oil, NRL gets all of its crude from the oil fields in the North-East. What impact does this have on your overall business? NRL has so far been processing crude oil from the North Eastern oil fields and its crude procurement prices are linked to the international market. Therefore, price volatility in international market influences NRL’s crude procurement prices as well. However, being a well-head refinery, NRL is fairly insulated from supply disruptions. The North East refineries, in particular, are sensitive to changes in duty structure of crude and petroleum products. In June 2011, government reduced Customs Duty on crude oil, MS and HSD by 5%. This measure is not expected to have significant impact on profitability of other refineries in the country processing imported crude. However, it has seriously affected profitability of the North East refineries, including NRL processing only domestic crude.
To what extent do constraints related to crude supply act as a hindrance to NRL’s expansion and growth plans?NRL’s refinery at 3 MMTPA capacity is sub-economic in size. Even at such sub-optimal size, NRL has to operate below its installed capacity due to inadequate availability of domestic crude. On the other hand, importing limited quantities of crude for processing at NRL is cost prohibitive. In order to achieve economic scale of operations, NRL has mooted a plan for refinery expansion from 3 to 8 MMTPA by processing imported crude oil. To facilitate transportation of around 5 MMTPA, imported crude oil from Dhamra port in Orissa to Numaligarh, a new pipeline is envisaged to be constructed.