India builds world's largest refinery to serve the West

By Can Merey Nov 22, 2006, 8:00 GMT

Jamnagar, India - In the West, India's reputation rests largely on its prowess in providing services at low cost, while China is seen as the world's factory.

But India is also making great strides in manufacturing industry.

Reliance Industries, India's largest private corporation, is currently building the largest oil refinery site in the world on the country's western coast near Jamnagar in Gujarat State.

It aims to have the refinery producing high-value fuels from imported crude by December 2008.

The fuels are exclusively for export to the West, primarily to Europe and the United States.

Founded as a textile concern, Reliance is now one of India's most successful companies, but it has only in recent years entered the oil sector.

In 1996 the company began building its first refinery at Jamnagar, against the advice of experts who warned business would be 'lousy.'

The complex was built over an area equivalent in size to around a third of Manhattan Island in only 36 months, by comparison with the more usual four-to-five years.

Reliance confounded the experts and now regards the refinery, which went onstream in 1999, as the jewel in its crown.

It processes 660,000 barrels a day and lies in third position on the global table.

Alongside the successful existing plant, a new one is rising up. Work began on December 1 last year, with December 2008 pencilled in for the date the refinery goes onstream.

'We are attempting to beat this target,' says Reliance Industries director Hital R Meswani.

The refinery is budgeted to cost 6 billion dollars. At the peak of construction there will be up to 100,000 people working on the site.

Once complete, the refinery will process 580,000 barrels a day, boosting total capacity at Jamnagar to 1.24 billion barrels a day - more than anywhere else in the world.

The first refinery already produces mainly for export. The second will be devoted entirely to foreign customers.

The refinery is being built in one of the new special economic zones set up in India. Over the first five years of operation, all income from exports will be tax-free, while only 50 per cent of the income will be taxed over the succeeding five years.

Neither the imported crude nor the fuel processed for export will be subject to customs duties.

The aim at the new refinery is to turn the lowest-quality, and thus cheapest, crude into top-quality fuels commanding the highest prices on world markets.

World supplies of high-quality 'sweet' crudes are in decline, while ever-increasing amounts of heavy crude with a high sulphur content is being pumped.

The price difference last year was around 5 dollars a barrel for Arabian oil. At the same time demand for high-quality, low-sulphur fuels is on the rise in the West as a result of stricter environmental standards.

'We can process virtually any kind of crude,' says Meswani. The fuels to be produced at the new refinery will meet the highest environmental standards in Europe and the US, even though they are produced from low-quality crude.

Only around 30 of the 660 refineries currently operating in the world can achieve this. Older plants are not able to do this, and Meswani says that 72 per cent of the plants in production are 25 years old or older.

The refineries in Europe and the US are almost all older, and in any case almost all the refineries are working at capacity or near to it.

According to Meswani, modernization has not been carried out in time. Reliance believes it will not face serious competition from refineries that can match Jamnagar until 2010.

Meswani sees Jamnagar's significance reaching well beyond the subcontinent. The refinery 'golden age' for Asia is dawning.

'Reliance is building a refinery for the West on an Indian site,' he says, adding that the refinery is simultaneously a challenge to those who believe China is always ahead of India when it comes to industry.