Essar Energy unveils $100 mn programme for UK refinery

Written by PTI | New Delhi | Updated: Feb 19 2014, 04:55am hrs
Essar EnergyEssar's Stanlow Refinery in Ellesmere Port had in January last year reported a furnace fire. Reuters
London-listed Essar Energy plc today said it will start a USD 100 million cost improvement programme at UK's second-biggest oil refinery to weather sharp dip in refining margins.

The Stanlow refinery had a negative gross refining margin of 2.61 per barrel in the third quarter of 2013-14 fiscal as compared to earning USD 7.22 on turning every barrel of crude oil into fuel in the same period a year ago.

The negative GRM was "due to major turnaround during the quarter, lower benchmark margins and increased production of lower value intermediary products post the furnace incident," the company said in a statement.

Essar's Stanlow Refinery in Ellesmere Port had in January last year reported a furnace fire.

"At the Stanlow refinery in the UK, throughput during Q3 FY2014 fell to 5.8 million barrels compared to 18 million barrels during Q3 FY2013. This was mainly due to a planned major maintenance shutdown in the quarter and a subsequent furnace incident," the statement said.

As a consequence of the turnaround, furnace incident and negative GRM, Stanlow has had negative cash flow of USD 287 million in the year to date including capital expenditure of USD 170 million.

"This shortfall has been met by a combination of operating cash flow, extended working capital facilities and equity," it said.

As a result of its financial performance and the weak European refining industry environment, "Stanlow is embarking on an estimated USD 100 million cost improvement programme to ensure that the business is able to weather this period of exceptionally poor refining margins. This programme will focus on all aspects of operating, capital and financial costs without compromising safety or reliability."

Stanlow will be mothballing its smaller crude unit by October this year. This will further reduce fuel oil and naphtha production and improve absolute margins whilst delivering cost efficiencies, the statement added.

Stanlow's yield profile is expected to become around 33 per cent gasoline, 57 per cent kerosene and diesel and 3 per cent fuel oil. As a result, annualised crude throughput is expected to reduce to 71 million barrels per annum.