GAIL India in Talks with Domestic Oil Companies for Joint Integrated Refining and Petrochemical Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian gas major Gail India Limited (BSE:532155) (New Delhi) has revived plans to develop an integrated refining and petrochemical plant and is reported to be in talks with domestic oil companies in the public and private sectors to form a consortium for the project.

The firm is said to have started talks with Essar Oil Limited (BSE:500134) (Jamnagar, Gujarat), Hindustan Petroleum Corporation Limited (BSE:500104) (HPCL) (Mumbai), Oil India Limited (BSE:533106) (OIL) (Noida, Uttar Pradesh), Oil & Natural Gas Corporation Limited (BSE:500312) (Dehradun, Uttarakhand), and Reliance Industries Limited (BSE:500325) (RIL) (Mumbai) for establishing a special purpose vehicle (SPV) to implement the proposed project.

According to R K Goel, Gail's director of finance, the firm intends to develop a strong consortium of Indian companies capable of meeting the demands of the domestic as well as overseas markets. Goel also mentioned that the SPV will target development of a refining and petrochemical company in India, and explore investment opportunities for developing petrochemical plants in markets such as Russia and Iran, which have rich reserves of natural gas feedstock. The firm reportedly has assessed sites in North Asia and the Commonwealth of Independent States for developing a large-scale petrochemicals complex through public-private partnerships.

The new proposal follows an earlier failed attempt by Gail to develop a similar unit at Vishakhapatnam, Andhra Pradesh, in partnership with OIL, HPCL, Mittal Energy Investment Pte Limited (Singapore), and Total S.A. (NYSE:TOT) (Paris, France). The consortium proposed to develop a $10 billion export-oriented refining-cum-petrochemical complex with a refining capacity of 14 million to 15 million tons per year and a petrochemicals plant with a capacity of 1 million tons per year. The five-way alliance had completed prefeasibility studies for the project and was scheduled to take an investment decision in the second half of this year. The venture failed to materialize after Mittal Energy withdrew from the project last year followed by Total S.A., which decided to put its involvement on hold in September this year due to the global economic crisis and downturn in demand.

Gail's strategic decision to foray into the refining business stems from the company's plans to secure an uninterrupted supply of naphtha for its petrochemicals ventures. The firm has identified petrochemicals as one of three key focus areas, with the distribution of city gas, and gas transmission and distribution. Gail's petrochemicals business accounted for more than 32% of its segment gross profit in 2007-08.

In April 1999, Gail diversified into the petrochemicals business by launching the production of 260,000 tons per year of linear low-density polyethylene (LLDPE) and high-density polyethylene (HDPE) from its natural gas cracker unit at Pata, in Uttar Pradesh. The facility was later augmented to a capacity of 410,000 tons per year, and Gail developed a dedicated HDPE downstream polymerization unit with a capacity of 100,000 tons per year. In September 2008, the firm announced plans to double the capacity of the facility to 800,000 tons per year.

In January 2007, Gail incorporated Brahmaputra Cracker & Polymer Limited (BCPL) (Guwahati, Assam) as a joint venture with OIL, Numaligarh Refinery Limited (Golaghat, Assam), and the state government of Assam to develop a 280,000-ton-per-year petrochemical unit at Lepetkata, in the Dibrugarh district of Assam. Gail holds a 70% stake in the venture, while the other three partners each hold 10% stakes. In October this year, Gail announced that BCPL had attained financial closure for the $1.18 billion project.

In 2007, Gail signed a memorandum of understanding with RIL to develop a petrochemicals plant in any of the gas-rich regions of Central Asia, Middle East, or Russia. The two firms listed Abu Dhabi, Angola, Australia, Bahrain, Mexico, Qatar, Russia, South Africa, Vietnam and former Soviet Union nations as where they would jointly explore the feasibility of developing a petrochemicals plant with a capacity of up to 2 million tons per year.

Late last year, Gail signed an agreement with Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai) to assess the feasibility of developing a $2.16 billion petrochemical plant at Barauni in Bihar, with a capacity of 300,000 tons per year, based on a feedstock of naphtha from IOC's refinery at Barauni, natural gas from the eastern offshore fields, and imported liquefied natural gas transmitted through Gail's proposed Jagdishpur-Haldia pipeline.

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