Essar Energy is considering a number of options regarding the British refinery it acquired two-and-a-half years ago, in the face of persistently tough conditions in Europe.
Essar Energy is in “all kinds of discussions” regarding Stanlow in the face of tough competition from the US refiners, putting further pressure on the already-beleaguered European refining industry, a person familiar with the matters told Business Line , requesting anonymity.
Asked if one of the options will be exiting the refinery, the source said: “As we talk now, there is nothing about exit.”
In the UK, speculation has been building about the fate of Stanlow, a 260,000-barrel-a-day refinery in north-west England, which Essar Energy acquired from Royal Dutch Shell in a $350-million deal. An announcement was expected to follow Essar Energy’s delisting from the London Stock Exchange earlier this month.
While a number of sources quoted in the UK and Indian media have pointed to Essar Energy’s plans to sell Stanlow, it appears far from certain, and even unions remain cautious about speaking out until anything concrete is known.
“The margins (of Stanlow) are not very good, as is the case with other European refineries,” said the source, pointing to the revival of old refineries in the US in the face of low crude prices and low production costs.
The most recent update – the results for the quarter ending in December – presented a mixed picture of Stanlow: while the company launched a $100-million cost improvement programme, it had negative cash flow of $287 million as a result of a planned shutdown, an incident at one of its furnaces and negative gross refining margins. It also announced plans to mothball one of its crude refining units, reducing low margin products, but also its overall production.
Whatever happens at Stanlow, the recent developments in the market are certainly a setback – the company had had high hopes for its ability to withstand the pressures on the wider European industry by increasing productivity, and capital investment, and focusing on higher margin products over time. An exit from Stanlow would not be the only blow to Essar Energy’s global refinery aspirations. In October last year, it announced plans to exit the 50 per cent stake it held in Kenya Petroleum Refineries near Mombasa, citing a number of studies pointing against the economic viability of an upgrade to the refinery.
The source suggested the international exit had more to do with conditions in India. “A lot of work was done by the Essar Group overseas. But in the last two years, we have seen a down cycle in India which has impacted the overall business sentiment. So, first of all, we have to concentrate on the businesses we are in here and then we can look at elsewhere.”