How oil-to-chemicals integration saved the day for RIL

Reliance Industries, in its first-quarter results, beat street estimates to post an increase of 6.8% in its consolidated net profit at ₹10,104 crore. Though RIL’s new-age businesses — retail and telecom — helped it post a profit, the management said earnings could have been hit had the company not embarked on its oil-to-chemicals integration path a few years ago.

“We know the environment for refining and petrochemicals was volatile. The volatility in crude, the macroeconomic headwinds and China-US trade-related development all impacted the market but thanks to the level of integration we have between refining and petrochemicals, a lot of this volatility has gotten absorbed and without having any meaningful impact on our earnings,” said V. Srikanth, joint CFO, RIL at the company’s first-quarter earnings on Friday.

Petrochemicals segment revenue decreased 6.6% year-on-year to ₹37,611 crore in 1Q FY20 due to the decrease in volumes and price realizations, primarily in paraxylene (PX) and monoethylene glycol (MEG), which was partially offset by an increase in volumes of polyesters. Petrochemicals segment earnings before interest and tax, affected by lower volumes, was at ₹7,508 crore, down 4.4% year-on-year.

Reliance has developed an oil-to-chemical strategy to transform the Jamnagar refinery from a producer of fuels to chemicals.

“The objectives are to preserve as well as upgrade existing refinery margins, while maximising asset utilisation, for a sustainable competitive cost of chemicals,” RIL said in its 2018-19 annual report.

RIL has developed a multi-zone catalytic cracking (MCC) process, which converts a wide range of feedstock to high-value propylene and ethylene in a single riser.

The company ultimately wants to achieve greater than 70% conversion of crude refined in Jamnagar to competitive chemical building blocks of olefins and aromatics. The Jamnagar refinery product slate, at the culmination of oil-to-chemical transition, shall be only jet fuels and petrochemicals.

“All refined products priced below crude shall be eliminated for chemicals at the initial stage. Final fuel de-risking shall target the elimination of gasoline, alkylate and diesel, synchronised to the global evolution of E-mobility and transport fuel demand decline,” RIL said in its annual report.