Essar Oil is likely to cease fuel oil exports as early as May after starting a new delayed coker unit (DCU) at its 375,000 barrels per day Vadinar refinery last week, industry sources said on Wednesday.
“Essar will stop exporting fuel oil, but spot offers may still be made when margins are really good,” a source familiar with the matter said.
“Most of Essar’s volumes head into the Middle East bunker market anyways. In terms of impact, the market is not short on supply at the moment,” a trader said.
It was originally expected that fuel oil exports would be halted by the end of 2011, but the new unit had not been stablised by then, sources said.
Essar’s cargoes were on-specificaton 380-centistoke grade and traders were initially worried about the impact that this loss would have on the availability of cargoes that could be sold directly into the marine fuel market.
However, the sulphur requirement for marine fuel has since changed, with a 3.5 percent limit imposed to meet international requirements under the MARPOL convention.
“But with the sulphur limit now lowered to 3.5 percent, Essar’s cargoes at a maximum guaranteed 4 percent may require some blending as well,” another source added.
The refiner normally offers two spot cargoes of between 60,000-80,000 tonnes of 380-centistoke a month since 2011, which accounts for more than a third of India’s total spot exports.
On top of that, it also has a three-month term offering to provide one cargo monthly since last July.
Essar was last seen selling an early April loading cargo to U.S.-based trader Cargill, with no new tender offering made since.
With the addition of the new DCU, the refinery would be able to convert bottom-of-the-barrel vacuum residue into higher value products such as gasoline, gasoil and vacuum gasoil (VGO) instead, the company said in a news release.
Essar’s fuel oil output after the expansion will be “very small”, CEO Naresh Nayyar had told Reuters last July.
The Phase I expansion of its Vadinar refinery included the addition of secondary units as well a revamp of its crude distillation unit (CDU) and fluidised catalytic cracker unit (FCCU).