India starts up 300,000 bpd Paradip refinery - sources

NEW DELHI (Reuters) - Indian Oil Corp , the country's biggest refiner, on Sunday began crude processing at its 300,000 barrel per day (bpd) Paradip refinery and aims to fully commission the plant in six months, two company sources said, potentially adding to the glut of oil products in the region.

Output from the $5.2 billion Paradip refinery will compete with rising supplies of fuels from new and expanded plants in the Middle East and China, putting pressure on the profit margins of Asian refiners.

Asian refining margins- the difference between cost of crude and price of the finished product- have eased after touching multi year highs at the beginning of the year as regional demand is hit by slowing economic growth, especially in China.

"Today we got some naphtha, kerosene and gasoline," said one of the sources.

IOC aims to start secondary units that help improve the quality of fuels in phases by end-October, the sources said. The plant on the east coast was expected to operate at 60 percent capacity between November and March.

Paradip plant was initially expected to begin operations in 2012, but a flurry of problems, involving supplies from contractors, environmental concerns and natural calamities, repeatedly delayed the project.

The state refiner will shut the only crude unit at the plant after 10-15 days of operations for about two months and use the intermediary products for commissioning the secondary units, they said.

India has nearly doubled its refining capacity over the last decade to almost 5 million barrels per day, making it the world's fourth largest refining centre after the U.S., China and Russia, according to BP's statistical review of world energy.

The Paradip refinery is the most sophisticated of IOC's 11 plants. With the commissioning of Paradip refinery, IOC's overall refining capacity has been increased to 1.61 million bpd, about 35 percent of the country's 4.6 million bpd capacity.

The last refinery commissioned in India was three years ago, when HPCL-Mittal Energy Ltd (HMEL) commissioned its 180,000 bpd refinery at Bathinda in northern Punjab state.

Paradip refinery is expected to mainly cater to the markets in eastern India, currently fed by sourcing fuels from private players and other plants in northern India, and free up some gasoline for overseas markets.

Gasoline margins have remained strong in recent months even as margins for other products such as diesel, mostly used in construction, and shipping fuel, have weakened.

The plant is designed to process Mexico's Maya crude, although West African sweet crude was used to commission the crude unit, the sources said.

(Additional Reporting by Jacob Gronholt-Pedersen in SINGAPORE; Editing by Ralph Boulton)