Essar Oil UK to spend $250 million upgrading Stanlow refinery

By Nidhi Verma and Promit Mukherjee

NEW DELHI/MUMBAI (Reuters) - Essar Oil UK expects a $250-milion upgrade of its Stanlow refinery in northwest England to improve its basic profit margin by $1 a barrel as it will be able to process a greater variety of cheaper crude oils and raise output, its chief executive said on Wednesday.

The company, owned by the Indian billionaire Ruia brothers' Essar Group, plans to raise the annual processing capacity of Stanlow by about 10 percent to 75 million barrels.

The company's gross refining margin, the profit from processing a barrel of crude, stood at $9.20 a barrel in the March quarter, up from $6.80 a year ago.

The Ruias, who last month completed the sale of their Indian refining business Essar Oil to a consortium led by Russia's Rosneft for $12.9 billion, have so far invested $800 million in Stanlow since acquiring it from Royal Dutch Shell in 2011. http://reut.rs/2eKWPOi

Essar plans to complete the expansion of the crude unit and revamp its catalytic cracker by July, S. Thangapandian told Reuters, adding that the refinery would be shut for at least a month to undertake the upgrade.

"The final schedule for the shutdown will be drawn up in two to three months' time," he said, adding that following the expansion the company's petrochemical production would also rise by about 10 percent.

Essar mostly processes light oils because of stringent emission standards in the UK. But Stanlow's use of North Sea crudes has been cut to about 50-70 percent from about 85 percent with an increase in purchases of oil from north and west Africa.

The refiner earlier this year also took in for the first time a consignment of Eagle Ford shale oil from the United States and has booked two more cargoes, for delivery in October and November, to take advantage of price differentials.

While the supply glut has weighed on Brent and West Texas Intermediate prices, the spread between the two grades holds at about $4.50 a barrel.

"There is scope to buy more cargoes from the U.S. if the differential between Brent-WTI stays above $3 a barrel," Thangapandian said.

In the last year Stanlow has processed 37 more grades of crude and the expansion is geared towards further diversifying supplies to process cheaper grades while improving middle distillate yields.

Essar UK supplies 16 percent of the UK's demand for road transport fuels and operates 36 retail fuel stations but Thangapandian said the company aims to expand this number to some 400 in the next five years.

(Reporting by Nidhi Verma in New Delhi and Promit Mukherjee in Mumbai; Editing by Greg Mahlich)