Essar Oil to use GSPL network for LNG supply to its HMU

Private sector oil refiner Essar Oil Limited is set to get cheaper feedstock for its hydrogen manufacturing unit (HMU) at the Vadinar refinery. The company has entered into a long term gas transmission agreement with state-run Gujarat State Petronet Ltd, which is expanding its pipeline network to the Essar Oil's Vadinar refinery near Jamnagar.

The move is expected to bring down energy cost for the private sector refiner and also open doors for future LNG sourcing from other suppliers that include state-run companies and international natural gas majors.

As per the agreement, the gas transmission line will entail LNG supply of about 2.5 million cubic meters per day (mcmd) to Vadinar refinery.

The natural gas will be used primarily as a feedstock for Essar Oil's HMU. The company looks to replace costly inputs such as naphtha and liquefied petroleum gas (LPG).

"With the availability of gas transmission capacity on take-or-pay basis from GSPL, we will have the flexibility to source LNG from different sources, which will help us to reduce our LNG procurement cost, thereby improving margins," said an Essar Oil official requesting anonymity.

The HMU, which was commissioned in January 2012 as part of the phase-I expansion of Vadinar refinery, has been designed to operate on six feedstock options including natural gas, refinery fuel gas, LPG, naphtha and a blend of LPG and hydrotreated naphtha.

It is believed that the agreement with GSPL will provide Essar Oil flexibility to import its own LNG from international suppliers.

"The agreement was signed some months ago and the work is under progress. The gas transmission agreement is for a period of 15 years," said a source privy to the development. The pipeline is expected to be ready by 2014.

With the assured gas transmission facility, Essar Oil is believed to save on costs, which will improve profitability for the company.

Essar Oil had registered net profit of Rs 32 crore for the third quarter of the financial year 2012-13 ended on December 31, as against a net loss of Rs 362 crore during the same period previous year.

Company's gross revenues had jumped 86 per cent on year-on-year basis to Rs 25,909 crore for December quarter as against Rs 13,897 crore in the corresponding period previous year.