INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

FIRE AT RIL REFINERY TO HIT LPG, FUEL OUTPUT

  OPERATIONS at Reliance Industries' Jamnagar refinery were disrupted on Wednesday after a major fire broke out at the processing units of the facility. The fire, which broke out at around 10:40 am, has caused substantial damage to the vacuum gas oil (VGO) hydrotreater unit of the refinery, impacting the production of high-grade auto fuel.

   The intensity of the accident, which left one employee seriously injured, forced residents of nearby villages to flee while there was some panic in the industrial township. Massive construction works are on in Jamnagar, where Reliance is setting up a second refinery, a special economic zone and a petrochemical complex. Around 25 fire engines brought from Jamnagar city, Essar, GSFC, Rajkot and Tata Chemicals in Mithapur were pressed into action to put out the fire.

   According to early estimates, the VGO hydrotreater unit could be shut for almost a fortnight as the fire was extensive and has caused severe damages. Although company officials maintain that production will not be impacted, industry analysts say RIL may end up reconfiguring product yields, which in turn will lead to cut in some products like LPG.

   “We are told that a shutdown of about 15 days would lead to a production cut of LPG by about 50,000 tonnes. We have already floated tenders to import additional cargoes,” petroleum secretary MS Srinivasan said.

   “Although the fire was at the VGO, it would impact the hydroprocessing unit, and this would lead to some changes in the product mix,” a senior government official said.

   The petroleum ministry, which swung into action soon after the fire broke out, held parleys with company officials, directing inventories to be drawn down to avoid any shortage till additional supplies arrive.

   The fire at the 100,000 bpd VGO hydrotreater is expected to directly hit RIL's gross refining margins. The VGO hydrotreater is used to make the high-value Euro 3 and Euro 4 compliant diesel. With the unit out of action, the refinery may have to resort to processing sweeter crudes, which are more expensive. Industry sources estimate the fall in margins to be over $1/bbl, even as details on the extent of damage are awaited. The company reported a GRM of $9.3 in the second quarter results declared last week.

   The VGO is used to extract sulphur from diesel to make it a cleaner fuel. High-quality, low-sulphur diesel is sold at a premium in the international markets, and is in huge demand in environmentally-sensitive markets like California. The refinery has two such units and products could be diverted to the other unit for processing.