SINGAPORE/NEW DELHI (Reuters) - Oil trader Trafigura has made its first move into refining in Asia, investing up to $130 million for a 24 percent stake in Nagarjuna Oil Corp Ltd's (NOCL) planned refinery in Tamil Nadu and replacing BP (BP.L) as NOCL's crude supplier.
India and other emerging markets are boosting refining capacity to feed rising regional demand, while their counterparts in the United States and Europe restructure or shut plants as fuel sales slow.
This is the first direct investment in the refining business by Trafigura Pte Ltd, a unit of the world's third largest crude oil trader Trafigura Beheer B.V., which has so far invested in the refining business through its unit, Puma Energy LLC.
"With BP, Nagarjuna Oil had a commercial agreement for crude supplies and export of products but Trafigura has come as a strategic investor ... they are buying a stake in the project," said a source privy to the deal.
"There can be only one strategic investor in the project. BP is not there now," the source said.
He said Trafigura will have marketing rights for its share of refined fuels from the 120,000 barrels-per-day (bpd) plant -- India's third privately owned coastal refinery after Essar Oil ESRO.NS and Reliance Industries (RELI.NS), owner of the world's biggest refining complex.
"Geographically, the facility is well positioned to receive crude oil from Trafigura's international producer partners," Trafigura said in a statement.
NOCL, which will initially control about 3 percent of India's current 4.3 million bpd refining capacity, will look at local sales of fuel through state refiners as private companies do not get compensation from the government for selling fuel at subsidised rates set by New Delhi.
"Selling into the Indian market without the support of state-owned companies is a loss-maker, so the focus will be on export or trade," said Alex Yap at energy consultant FACTS Global Energy.
He said India was a strategic place to sell gasoil and jet fuel into Europe and gasoline into southeast Asia, the Middle East and Africa.
"This deal also gives them a foot in the door for storage, which traders can't get enough of," he added
Trafigura is also investing $120 million for construction of storage facilities at the site.
Commissioning of the project, initially scheduled to be completed by November 2011, is expected to start this year with commercial operations scheduled to begin during the first half of 2013, Trafigura's statement said.
NOCL said on its website that the refinery would be expanded to 300,000 bpd by 2015.
The new refinery and storage project will be located on the east coast of India, and will be able to receive supertankers, which typically can load up to 2 million barrels of oil.
The refinery, which will be processing mainly heavy sour crudes, w ill be gearing up to produce distillates like gasoline, and gas oil in line with Euro IV standards.
Other project partners includes TIDCO, owned by the local Tamil Nadu state government, and Tata Petrodyne, a subsidiary of India's largest corporate house Tata Group, the statement said.
Shares of Nagarjuna Oil Refinery Ltd. (NORL.NS) closed more than 9 percent higher on Thursday at 8.90 rupees, while the broader benchmark index was up 0.77 percent.
"India is fast emerging as a leading hub for oil refining, with domestic demand rising and an increasing trend towards cleaner refined products," said Trafigura's Jonathan Pegler, director of Oil Asia Pacific.
Additional reporting by Florence Tan in SINGAPORE; Editing by Jo Winterbottom and Himani Sarkar