Sitting on the edge of the water in the Gulf of Kutch on India’s western shore is one of the United States’s dirty secrets. A mass of steel pipes and concrete boxes stretches across 33km2 — a third of the area of Manhattan — which will eventually become the world’s largest petrochemical refinery.
The products from the Jamnagar complex are for foreign consumption. When complete, the facility will be able to refine 1,24-million barrels of crude a day.
Two-fifths of this gasoline will be sent 15 000km by sea to the US.
India’s biggest private company, Reliance Industries, with a market capitalisation of $33-billion, runs the plant. Controlled by billionaire Mukesh Ambani, whose father Dhirubhai founded the company, Reliance towers over its industry rivals, contributing 8% of India’s exports.
The company’s ambitions in Jamnagar have helped India move from being a net importer to an exporter of refined petroleum products. ”We want to make a statement that India can be an industrial giant. Jamnagar is a refinery for the world, based out of India,” said Hital Meswani, executive director of Reliance Industries. ”In the mid-Nineties when this project was conceived, no one believed it would work. We were told there was too much capacity, returns were not great and every management consultant we hired told us don’t bother.”
In the dizzy days of the Nineties internet boom, distilling crude into diesel, gasoline, home-heating oil and aviation fuel was considered a dinosaur business, with low margins and large outlays. Oil refining was yesterday’s business, not tomorrow’s.
But Reliance says it gambled on a ”paradigm shift” in the economics of the refinery business. The company, which began as a textile trader, but moved into producing polyester, had noticed that India was importing millions of tons of refined hydrocarbons a year. Its managers projected prices creeping upwards largely due to three global oil trends.
First the oil being produced from the world’s hydrocarbon reservoirs was increasingly ”sour”, or heavy, full of sulphur and other impurities that older refineries could not cope with. Second was that no new capacity was being built around the world.
Environmental concerns and the rising costs of infrastructure projects discouraged the oil majors from putting up refineries in Europe and the US. No new oil refinery has been built in the US since the 1980s as environmental legislation has tightened.
Third was Reliance’s belief that Asian economies would become dynamos of world growth — inevitably increasing demand for petro- products. It also saw that many European countries wanted cleaner petroleum, which required complex refining techniques.
According to its strategists, commercial logic dictated that new, high-tech refineries would be needed — and soon. Reliance, Meswani says, decided to build big.
Work started in 1996 on a dry, sandy stretch in Jamnagar, about 800km north of Mumbai in the Gulf of Kutch with almost 100 000 workers toiling around the clock. Although the area was off the beaten track and served by just one small airstrip, supertankers could deliver by sea.
The first stage was to build a refinery that could process 660 000 barrels a day. Meswani and Ambani lived for months on site in shipping containers to make sure the project ran smoothly. A five-star complex with villas for 2 400 families, a golf course and swimming pools were built for foreign workers.
Having built from scratch the world’s third-largest refinery complex, stage two in the Reliance plan is to double capacity by 2008. Other companies and nations have woken up to the potential of refining. Saudi Arabia’s national oil company, Saudi Aramco, is planning a 400 000-barrel-a-day refinery. — Â