Reliance mega-refinery to redraw fuel trade routes

By Luke Pachymuthu and Felicia Loo

SINGAPORE (Reuters) - When Reliance Industries opens a second huge refinery in India this summer, world oil consumers may heave a sigh of relief at the injection of extra fuel into a market that has been short of capacity for years.

But the issue for physical oil traders is less about global fundamentals than regional arbitrage, as the surge in gasoline, diesel and jet fuel exports -- the biggest one-off rise in world supply since Reliance launched its first plant in 1999 -- will open up new trading opportunities while closing some old ones.

The 580,000 barrels per day (bpd) export-oriented refinery, now 90 percent complete and expected to be inaugurated in July, nine years after the first plant was finished, will have the edge over its peers as it can process cheap, low-grade crude into gasoline and diesel that meets strict Western standards.

A low cost base and high complexity will offer unrivalled global reach for its fuel, allowing it to shift exports to the highest-priced market when full production starts in January.

It will play a swing supply role that will redraw traditional trade flows, and has already embarked on a robust marketing campaign in Europe, Mexico and East Africa, capitalising on delays and cost overruns faced by other big refinery projects.

"Reliance is being extremely aggressive in its marketing strategy... They are all over Europe marketing what will come up this year," says Fereidun Fesharaki, head of FACTS Global Energy, which advises companies on refining and marketing strategies.

The plant, in Gujarat's Jamnagar district, will take Reliance's total capacity to 1.24 million bpd, making it the largest facility in the world and going some way to alleviate a global shortage of capacity that has aided four years of above-average profit margins for refiners worldwide.

Even if global margins deteriorate, as many analysts expect, Reliance is likely to prosper as it has invested in a plant that can use the world's cheapest crudes -- those with high sulphur, acid and metal content -- to make the best products.