INSUBCONTINENT EXCLUSIVE:
Mukesh Ambani's conglomerate has finally commissioned the 10 synthetic gasifiers that make up the projectA global glut in natural gas is
threatening to undermine a $4 billion investment by Reliance Industries Ltd
aimed at boosting profits at the world's largest oil refining complex.The project made all the sense in the world when energy magnate
Mukesh Ambani's conglomerate announced it in 2012: convert petroleum coke, or petcoke, one of the cheapest and dirtiest refinery
by-products, into gas needed to power the massive Jamnagar complex on India's west coast
Then it hit about three years of delays, and global gas markets crashed amid a growing supplies of liquefied cargoes from the US, Australia
and Russia.The 10 synthetic gasifiers that make up the project are now finally commissioned
But the imported LNG they're meant to displace has fallen from about $15 per million British thermal units in 2012 to less than $5.And that
price slump has reduced the project's viability, according to a person with knowledge of the company's finances.Reliance predicted in
2014 that the project would boost Jamnagar's refining margins by as much as $2 a barrel
Now, Mumbai-based brokerage Centrum Broking Ltd
sees an uplift of about $1.30 to $1.50 a barrel by the 2021-2022 fiscal year, according to a July 21 report by analysts Probal Sen and
Akshay Mane."It's not the most conducive environment to bring the petcoke project on stream," said Somshankar Sinha, head of India equity
research at Jefferies Financial Group Inc
"The LNG surplus has caused prices to fall much more than the usual decline in summer months," the Mumbai-based analyst added
Jefferies said it expects a full ramp-up of Reliance's project in financial year 2021.Project StatusThe gasifiers, originally scheduled to
begin operations in 2016, are now in the final stages of being stabilized and integrated with other facilities, with an expected increase to
full capacity in March, according to people with knowledge of operations, who asked not to be identified as information isn't
public.Reliance has said the units are still profitable at current LNG prices and it will cut down on imports of the fuel when they come
"Whenever it comes, gasification will be cost-effective," Joint Chief Financial Officer V Srikanth said in Mumbai last month.With the plant
still not fully operational, the company is still importing LNG, recently picking up several cargoes for delivery between July and October
Meanwhile, it has also been selling petcoke, according to a trader who distributes the product.Reliance spokesman Tushar Pania didn't
respond to an email seeking comment.Refining ReturnsA recovery in LNG prices "should aid economics for the gasifier," according to Centrum
curve for Asia's dominant LNG benchmark for supplies in Japan and South Korea, the super-chilled gas is priced at between $5.50 and $8 per
million Btu from 2020 to 2023
Prompt LNG prices are pegged at around $4.70 per MMBtu.Low LNG spot prices could encourage Reliance to take more spot volumes in the coming
quarters, although the company won't shift its long-term strategy away from eliminating petcoke residue, said Senthil Kumaran, a
Singapore-based analyst at industry consultant FGE.The payoffs from Reliance's investment in gasifiers, however, "won't be as rich as it
was originally thought," he added.(Except for the headline, this story has not been edited by TheIndianSubcontinent staff and is published
from a syndicated feed.)Get Breaking news, live coverage, and Latest News from India and around the world on TheIndianSubcontinent.com
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