Essar Oil to slash imports from Iran, posts Rs 52 cr profit

Essar Oil, India’s major oil refiner plans to cut its overall imports from Iran further to around 12-13 per cent from the existing 15 per cent despite improvement in relations between the US and Iran over the last few months, which gave hopes of higher imports by Indian refiners.

A person close to the development said it is unlikely that the imports would go up, rather the company is planning to cut imports to 12-13 per cent, since the government is not in favour of increasing imports from Iran as of now.

Essar officials declined to comment and said we are adhering to norms as advised by the ministry of petroleum and natural gas (MoPNG). “The set parameters are being adhered to,” said LK Gupta MD of Essar Oil.

The company as of now uses 20 million tonne of crude of which around 3 million is imported from Iran and is likely to go down to 2.4 to 2.6 million tonne. Around 45 per cent of the payments happen in rupee for the imports.

Essar Oil by 2012 imported around 40 per cent of its crude portfolio from Iran, however, it reduced it to 25 per cent in 2012 after US imposed sanctions on Iran. Later the portfolio was further cut to 15 per cent after it got a higher refining complexity of 18.1 per cent, which allowed the company to refine heavy and ultra heavy crude helping it to achieve better margins.

The increasing price differential between the ultra heavy and light crude has allowed companies to achieve margins in the range of 7-9 per cent, which is better than the benchmark Singapore and Dubai refining margins and has given the refiners like Essar Oil and RIL to move to far away locations without affecting their refining margins.

The company has entered into various contracts with the Latin American countries to source ultra heavy and heavy crude, which makes up for the discounts that company secures on Iranian crude.

An independent expert on oil and gas said, the refiners are also worried about the lack of insurance coverage to the ships carrying oil from Iran. “Unless the carriers get insured on the lines of European carriers, Indian refiners would be apprehensive to look at Iran in the long term. Though things have started to look up and if Iran continues to impress US and EU there may be a definite change in the relations that would reflect in higher import by Indians as well,” the oil and gas expert said.

The company expects the light heavy differential to remain at current level, as the demand for heavy crude is muted for now. If the demand for product goes up the prices are bound to go up, however, as of now International Energy Agency (IAEA) has predicted the demand for heavy and ultra heavy crude in China and US would be less that would help companies like Essar Oil to benefit from the difference in price of heavy and light crude which is comparatively higher.

The total imports of crude by Indian refiners from Iran have also come down to 6.74 million tonnes for the first nine months of current fiscal. The imports during April-December are 61 per cent of the target of buying 11 million tonnes of oil during the fiscal, said Panabaaka Lakshm, the minister of state for petroleum and natural gas in a written reply to a question in Lok Sabha on February 7.

India imported 13.14 million tonnes of crude oil from Iran in 2012-13, down from 18.11 million tonnes in the previous year.

Essar Oil reported a net profit of Rs 52 crore in the third quarter of fiscal year 2013-14 from the loss in two previous sequential quarters. However, it is a gain of 63 per cent over the third quarter of last year.

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