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Reliance Industries eyes $300 million boost from switch to ethane

LiveMint logoLiveMint 23-08-2017 Shally Seth Mohile

Mumbai: The ongoing switch to ethane as feedstock at Reliance Industries Ltd’s petrochemical units in Dahej, Hazira and Nagothane will drive up operating profit by $300 million, company executives said.

Reliance Industries plans to import 1.3-1.4 million metric tonnes of ethane from North America in 2017-18, Vipul Shah, chief operating officer for petrochemicals, Reliance Industries, told reporters. This will reduce the firm’s petrochemicals feedstock cost by almost a third, he added.

In April, Reliance Industries commissioned a $1.5 billion project to receive, store and use ethane at its Dahej facility in Gujarat. Ethane is used as a petrochemical feedstock to produce ethylene. These imports will help Reliance Industries increase capacity and substitute imports of ethylene, used as raw material for several industrial products including paints, coatings and ink.

Supplying ethane to Dahej and Hazira in Gujarat and Nagothane in Maharashtra will provide feedstock security and flexibility, enabling the Reliance Industries to select the most optimal feed-mix based on market conditions. Previously, the Dahej and Nagothane plants were running on gas, while Hazira was using naphtha.

Besides improving the cost competitiveness of existing crackers, ethane imports will enable Reliance Industries to optimize the portfolio in a volatile market environment. The Mukesh Ambani-led firm has more than 20-year-long contracts to import 1.6 mmtpa of ethane from the US, said Amit Mehta, head of Reliance Industries’s gas business. The project will increase the company’s ethylene capacity by 200,000 million tonnes per annum. Reliance Industries expects to recover the cost of the project in less than four years, said Shah.

Reliance Industries primarily uses naphtha at its petrochemical units. Feedstock is the largest cost for petrochemical companies, accounting for 40-60% of total costs. Reliance Industries currently uses 2.5 million tonnes of naphtha every year as feedstock at its petrochemicals units. Importing ethane will reduce naphtha use by 500,000 tonnes per year, officials said.

The ethane project makes Reliance Industries the biggest importer of ethane from the US in 2017, followed by INEOS—a global manufacturer of petrochemicals, speciality chemicals and oil products, the company claimed. The total export of ethane from the US for 2017 till May stood at 0.9 mmtpa. Of this, exports to Reliance Industries was 416 kiloton.

“Ethane import from the US will boost company’s margins as its a very competitive raw material compared to naphtha. So far, their crackers were dependent on naphtha,” said Nitin Tiwari, analyst at Antique Stock Broking Ltd. On an average, the petrochemical business contributes 35% at company’s Ebit (earnings before interest and tax) level, while the rest comes from the refining business, he added.

Reuters contributed to the story.

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