March 21, 2011 / 11:52 AM / 8 years ago

India refiners delay shutdowns as Japan crisis pumps diesel prices

NEW DELHI (Reuters) - Indian state refiners have dropped shutdown plans for April in a sign of the widening impact of Japan’s crisis on global oil markets, and calls for Reliance to be allowed to sell domestically from its export-focused plant revive.

A worker fills jerrycans with diesel at a fuel station in Kolkata December 31, 2010. REUTERS/Rupak De Chowdhuri/Files

BPCL Chairman R. K. Singh said his firm has decided to defer a planned April shutdown of units at its plants, while Hindustan Petroleum is also considering delaying maintenance from April.

The country’s diesel demand, which peaks in the summer, is expected to be even higher this year as five key states hold elections from April and the fuel will be used extensively in transport on top of power generation.

“Current diesel demand growth is around 10 percent and it will rise further in next two months mainly due to higher demand from agriculture and for transportation due to elections,” said G. C. Daga, head of marketing at Indian Oil Corp.

India’s domestic diesel sales, which make up over a third of refined products consumption, rose an annual 6.3 percent in January. .

Refiners who had scheduled maintenance for April had been looking for at least 400,000 tonnes of imports in the month — sharply up from about 110,000 tonnes bought in January.

Last week, IOC could not get price offers for a diesel tender and had to abandon it while Bharat Petroleum had to pay a hefty premium for importing just one of the four cargoes it had sought.

Gasoil prices internationally are likely to stay firm, underpinned by Japan’s need for diesel imports as it gets reconstruction underway after a massive earthquake and tsunami.

Asian gas oil swaps hit a 2-1/2 year peak over $24 a barrel last week although they have since weakened slighty, with cracks below $23 a barrel now as some Japan refineries restarted and run rates increased.

“I am a state-run firm, I have to run for the country,” said B.N. Bankapur, head of refineries at IOC, adding if required his firm would defer shutdown plans.

“It makes sense for state refiners to defer their shutdown plans as the monsoon arrives in Kerala in the first week of June and reaches Mumbai in the the latter part of the month, reducing demand for transportation fuel,” said an industry expert.

NO CHANGE FOR PRIVATE REFINERIES

Private refiners Essar Oil and Reliance Industries, which prefer to sell diesel to state-run firms than make direct sales as they don’t get federal compensation for sale of fuel at government-capped prices, plan to go ahead with scheduled shutdowns.

An Essar Oil spokesman said as of now there was no change in plans to shut completely the Vadinar refinery in western Gujarat state in May-June for 35 days for maintenance and expanding capacity to 360,000 barrels per day (bpd).

A source with knowledge of Essar’s plans said the shutdown was due from May 15 to June 21.

Reliance, which operates the world’s biggest refining complex at Jamnagar, plans repair work at a vacuum gas oil unit from later this month and at a coker from end-April at its 660,000 bpd plant at the site in the western state of Gujarat.

“Reliance will be supplying less diesel to the industry (state-run firms) in April-May, while Essar will be fully shut in May-June,” an HPCL official said. “Reliance should be allowed to sell the fuel to us from its second refinery,” he added.

The Indian government levies higher taxes on local supply of fuel from Reliance’s only-for-export 580,000 bpd refinery, which is also at Jamnagar.

As a result, even though the country has a refining surplus, state-run firms must look overseas to meet local demand.

“It is a high time. The government should look at changing policy in such a way that allow export refiners to sell in domestic markets. It will be a win-win situation for all as it would reduce dependence on costly imports,” said Sushant Gupta, an anlyst at Wood Mackenzie.

Additional reporting by Jennifer Tan in SINGAPORE; Editing by Jo Winterbottom

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