Reliance Industries to Acquire Overseas Refining Facilities by End-2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--According to recent reports, India's leading private sector refining company, Reliance Industries Limited (BSE:500325) (RIL) (Mumbai), is expected to acquire petrochemical and refining facilities in Europe and the U.S. by the end of this year. The economic slowdown has forced many petrochemical and refining companies in the U.S. and Europe to sell assets. Sources indicate that the decline in prices and slumping petrochemicals demand are expected to help Indian petrochemicals majors in acquiring assets at relatively low prices.

RIL is exploring the possibility of acquiring inexpensive refining and petrochemical assets overseas in order to compete with its rival Essar Group (Mumbai). Essar has been aggressively strengthening its global production capabilities by purchasing refineries and petrochemical plants worldwide. RIL is in talks with some of the leading chemicals and petrochemicals companies in the U.S. and Europe, and is expected to finalize its acquisitions shortly. Reports indicate that while RIL leads Essar Group in domestic petrochemicals production, the latter has made the first move in acquiring international assets. Essar is reportedly negotiating a deal to purchase one of the United Kingdom's largest refineries operated by Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands). The company has also acquired a stake in Kenya's oldest refinery located at Mombassa.

Last month, there were reports of RIL actively scouting the international refining and petrochemicals market for acquisitions after the company raised $640 million by selling its treasure stakes. Trade analysts have indicated that RIL, which is estimated to have a cash surplus of around $5 billion, has several acquisition options in the U.S. and Europe. These include a refinery in the U.K. operated by Petroplus Holdings AG (VTX:PPHN) (Zug, Switzerland), facilities owned by Eni SpA (NYSE:E) (Rome, Italy), Shell's Harburg, Stanlow and Heide units, and the Grangemouth refinery operated by Ineos Group Limited (Lyndhurst, United Kingdom). Sunoco Incorporated (NYSE:SUN) (Philadelphia, Pennsylvania) and Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) are also part of this list. Sunoco is planning to shut down its 100,000-barrels per day (bpd) refinery at Eagle Point, New Jersey, and also sell its chemicals division. Valero Corporation, which owns 16 refineries across Canada, Caribbean and the U.S., is also looking for buyers for its 235,000-bpd refinery in Aruba.

There are also reports of RIL acquiring Danish chemicals company, LyondellBasell Industries (Rotterdam, Netherlands), in a cash deal of $3.25 billion. LyondellBasell, which filed for bankruptcy in January, is Europe's largest manufacturer of petrochemicals, fuels and polymers. In December 2007, Basell, owned by Access Industries (New York), acquired and merged with Lyondell Chemicals Company for an all cash payment of $48 per share.

The petrochemicals industries in the U.S. and Europe are fighting to survive and stay afloat in the present environment of declining demand, slumping prices and stiff competition from the Middle East and Asia. After several months of production cutbacks and layoffs, several leading petrochemical companies in the region announced plans to shut down uneconomical production facilities. BASF SE (OTC:BASFY) (Ludwigshafen, Germany) will shut down its polystyrene unit in Ludwigshafen, Germany, while The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) is expected to stop production of ethylene glycol and ethylene oxide at its plants in Wilton, United Kingdom. In France, the vinyl acetate monomer and acetic acid production facilities operated by Celenese Corporation (NYSE:CE) (Dallas, Texas) and the methyl methacrylate and vinyl manufacturing units owned by Arkema SA (EPA:AKE) (Columbus, France) will also be shut down.

The refining and petrochemicals market in the U.S. is expected to show a faster turnaround. Experts have reasoned that this is mainly due to availability of new reserves of low-cost gas on the Gulf Coast. Europe is expected to take longer to recover, as the cost of feedstock is much higher than that incurred by low-cost producers in the Middle East. Analysts are optimistic that Asia, especially China, is expected to lead the recovery of the global petrochemicals industry.

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