Unlike others in the oil business, Reliance Industries’ Mukesh Ambani isn’t running short of cash. The issue facing him is, how to use it
When Bill Cleese took the stage at Houston on March 10, it didn’t take him much to get the 2,000 strong audience representing the who’s who of the international oil industry to double up in laughter. All that the CEO of Valero Energy, the largest independent oil refiner in the US, did was to use the image of a shell shocked, half plucked rooster in full strut to describe the predicament all of them are in. Wafer thin margins and forced shutdowns are now a way of life for refiners. Cleese is trying to find buyers for two of his refineries and thinks 2010 will be an even darker year for the business. He reckons at least two million barrels per day (mbpd) of refining capacities will have to be taken out if margins are to improve.
It seems unlikely, though Ambani subscribes to this school. Sources close to Ambani say he is increasingly dissatisfied with the kind of returns that now accrue in the oil refining business. The second refinery at Jamnagar was built to deal with more complexity crudes to produce cleaner fuels. The bet was it would eventually deliver higher margins riding on the back of growing demand in India and other parts of the world. While the company doesn’t declare information on both refineries separately, results since the time the project went on stream show little improvement.
(This story appears in the 02 April, 2010 issue of Forbes India. To visit our Archives, click here.)