Maximising Profitability without Subsidies

P Padmanabhan
Managing Director, Numaligarh Refinery Limited (NRL).
With current refining capacity of 215 MMTPA (4.4 million barrels per day) and another 90 MMTPA (1.9 million barrels per day) capacity enhancement in the pipeline, India is expected to emerge as a global refining hub in foreseeable future. But a formidable challenge before Indian refiners pertains to crude oil security. Therefore, adequate supplies of crude oil at cost effective levels are imperative requirements for sustained profitability, says P Padmanabhan, Managing Director, Numaligarh Refinery Limited (NRL). In an exclusive interview with Offshore World, he details about NRL's current capacity, product mix, marketing & distribution strategy , and future capacity expansion & refinery configuration, etc.Padmanabhan also shares insight into significant approaches taken by NRL to address the feedstock issue, improve profitability & product quality of the refinery.

Global refining capacity planned up to 2017 is around 6.1 million barrels per day, with half of capacity being set up in Asia Pacific region. Where does Indian stand on the global refining map?
India has witnessed rapid proliferation of refining capacity in recent times . As on 1st April, 2014, India’s refining capacity was 215 MMTPA (4.4 million barrels per day). Capacity enhancement by another 90 MMTPA (1.9 million barrels per day) is in the pipeline. With such significant capacity, India is expected to emerge as a global refining hub in foreseeable future.

Over the last couple of years, how have the gross refining margins of Numaligarh refinery been impacted amidst high volatility in feedstock pricing & subsidy burdens? What strategies have you undertaken to maintain the positive momentum?
NRL does not bear the burden under subsidy scheme as the Company is not engaged in retailing of subsidised petroleum products. NRL is also not required to share the subsidy burden of Oil Marketing Companies unlike the upstream oil companies. However, volatility in feedstock pricing does affect NRL's Gross Refining Margin (GRM). In order to improve GRM on sustained basis, NRL has been implementing various value added projects. During 2012 -13 and 2013-14, NRL’s GRMs were USD 10.52/bbl and USD 12.09/bbl respectively, which were amongst the highest in the Industry. We are always looking at opportunities to maximise value addition.

What are the current biggest challenges ahead and how are you gearing up? What steps have you taken to address the feedstock issue, improve profitability & product quality?
The major challenge before NRL pertains to time bound implementation of the refinery expansion project after finalisation of the Detailed Feasibility Report. This project is essential for NRL to achieve economic scale of operations for ensuring sustenance and growth. NRL's refinery expansion from 3.0 to 9.0 MMTPA is envisaged to be facilitated through processing imported crude that would be transported from an Eastern port to Numaligarh through a dedicated pipeline. This is largely expected to address the feedstock availability issue. Process configuration and technology selection for the new units are expected to be the best available globally in order to maintain the Company's legacy of delivering high quality products.

What are the current capacity & the product mix of the refinery, and how do you plan to expand the product basket and the marketing & distribution strategy for the new products in India & internationally?
Existing capacity of NRL's refinery is 3.0 MMTPA. Product slate of NRL comprises LPG, Naphtha, Motor Spirit, Aviation Turbine Fuel, High Speed Diesel, Superior Kerosene Oil, Raw/Calcined Petroleum Coke and Sulphur. Paraffin and Microcrystalline Wax are being added to the product slate after commissioning of the Wax plant, which is in final stages of completion.

Over 85 per cent of NRL's products are marketed in Northeastern, Eastern and parts of Northern India by its holding company Bharat Petroleum Corporation Limited (BPCL).

With regard to international market access, NRL’s products have since long been exported to Bhutan. Intermittent exports to Bangladesh through river route have taken place. NRL’s Naphtha is being periodically exported through the Haldia port.

An agreement has been signed with an oil Company in Nepal for supply of MS and HSD from NRL's Siliguri Terminal, located about 35 km from Nepal border. Supplies to this effect are expected to materialise very shortly. NRL is also pursuing an Indo-Bangla product pipeline for sustained product export to Bangladesh. This project is actively supported by the governments in both nations. Actions have been initiated for conducting route survey and detailed feasibility studies for the project. Export of auto fuels to Myanmar might well be another emerging possibility.

What are the new & niche products Numaligarh refinery is producing currently and in the pipeline? (Please provide detailed insights into the products, applications and targeted markets as well)
NRL's existing product slate has been stated earlier. Wax is being added to the product slate shortly. After commissioning of the Wax plant, NRL would be in a position to produce upto 50 TMT Wax per annum, which would be nearly 40 per cent of domestic demand. NRL's Wax could potentially be exported as well. Needle Coke is another speciality product of NRL, for which trial production has started. Apart from above, possibility of producing other value-added products such as Linear Alkyl Benzene (LAB), Hydrogenated Pyrolysis Gasoline (HPG) and Para Xylene are being explored.

In the context of applications, NRL’s Wax could be utilised in candle, cosmetic and pharmaceutical industries. Needle Coke is primarily a requirement for steel and aluminium industries. LAB, HPG and Para Xylene are primarily utilised in detergent, fuels, petrochemicals and chemical industries respectively.

May we have your comments on value addition at the refinery & integration with petrochemicals unit as an economic growth driver? How are you implementing this at Numaligarh refinery and how will this improve the overall profitability of the refinery?
Without any doubt a Refining - Petrochemical integration is the best practice in our industry. It not only helps in value addition but also protects revenue generation by being a natural hedge against fuel or petrochemical price volatility. Venturing into petrochemicals production is expected to be a realistic proposition after implementation of the refinery expansion project. We are also looking at synergy with M/s Brahmaputra Cracker and Polymers Limited (BCPL) which is implementing the Assam Gas Cracker Project at Lepetkata in Assam's Dibrugarh District. The proposition would however be driven by factors such as adequate demand generation in proximate markets.

How are you addressing the factors influencing refinery configuration in future - convergence of refining & petrochemical operations , energy optimisation, achieving environmental protection, economies of scale and feedstock flexibility (Please provide us a peek into the latest technology upgradations through revamps & new installations)?
Various refinery configurations for NRL's expansion project are being studied and the final configuration would be determined after finalisation of the Detailed Feasibility Report (DFR). NRL's Nelson Complexity Index consequent to refinery expansion is expected to be relatively high due to advanced secondary processing envisaged for incorporation. Although, higher complexity factor would mean higher investment, on the brighter side, it would permit increased value addition.

NRL has been on the forefront of energy conservation and environmental protection. The Company's certification under ISO 50001 for energy management and ISO 14001 for environment management besides bagging three Energy Conservation Awards from the Centre for High Technology (CHT) in 2013 bears testimony to the statement.

Economy of scale is planned to be achieved through implementation of the refinery expansion project, as stated earlier. The issue on feedstock flexibility is being addressed through appropriate technology selection for the new units that would permit processing of medium to heavy Sulphur crude oil from imported sources. At NRL preserving of the environment is one of our highest need and we have zero tolerance towards environmental degradation.

How is the refinery deriving maximum value out of the bottom of the barrels? Innovative steps taken by Numaligarh refinery to improve?
Prudent and contemporary technology selection by NRL during refinery conceptualisation stage has facilitated maximisation of distillate yield, which is over 90 per cent. There is minimal generation of heavy ends comprising petroleum coke and Sulphur. There is no generation of black oil or residue. NRL has been utilising Chevron Hydrocracking and Halder Topsoe Hydrogen generation technologies for maximising the value upgradation of products.

As a typical instance of innovative step taken towards performance improvement, NRL had taken the initiative of utilising natural gas as fuel and feed in the refinery in lieu of Naphtha. Another example is when we almost stopped Naphtha export which is value destruction and innovatively found more value added outlet for our product. This initiative has led to improvement in distillate yield, reduction in operating cost and hence refining margin, besides reduction in carbon footprint. At NRL, we constantly looking at opportunities to upgrade value and minimise cost, which has been ingrained in our DNA.

What are the exercises undertaken towards maximum utilisation of existing assets?
NRL's capacity utilisation is being maximised through optimisation of process parameters within the constraint of crude oil availability. The LPG bottling plant and Motor Spirit Plant are being operated beyond their installed capacity. These are instances of efforts towards greater utilisation of assets, to the extent possible.

What are the other external future unforeseen challenges the Indian refiners will have to be prepared for & in your view, how should the Indian refining industry counter the same?
A formidable challenge before Indian refiners pertains to crude oil security . Adequate supplies of crude oil at cost effective levels are imperative requirements for sustained profitability. The other challenge, particularly for those pursuing refinery expansions and in case of new refineries, pertains to obtaining statutory clearances in time bound manner. These are macro level issues to be addressed through representation with government authorities. Our biggest challenge is to maximise our profitability without depending on subsidies.