Essar targets South America for heavy crude

Essar Energy is looking to process more heavy crude from South America once its refinery in India completes an expansion later this year, reducing the overall proportion of Iranian crude intake, a company spokesman said on Friday.

The move to diversify the Vadinar refinery's crude slate comes as the US and Europe push ahead with oil sanctions on Iran due to a growing dispute over Tehran's nuclear capability.

"At Vadinar, the crude mix will show a significant change post-March, given our coker configuration. Ultra-heavy crudes will increase to around 60% of the crude basket from 20%," the Essar spokesman said.

"This means that, post-expansion, we need around 85 to 90 million barrels of ultra-heavy crudes each year. We have already secured crude agreements with Cairn India and the national oil companies of Colombia, Brazil, Mexico and Venezuela."

The spokesman declined to specify volumes.

The Vadinar refinery, located on the coast of Gujarat, is expected to continue to buy about the same volume of Iranian crude, even after the expansion.

These South American countries and Iran are producers of heavy crude oil, typically sold at discounts to international benchmark allowing complex refineries to lock-in higher profit margins.

Asian buyers are being pressured to cut back Iranian crude volumes ahead of the EU ban on Iranian crude imports as of July 1.

By September, Vadinar's crude oil processing capacity will be boosted to 405,000 barrels per day (bpd) form 375,00 bpd, while it will also become a more complex refinery with a complexity indicator of 11.8 from 6.1.

Essar also operates the Stanlow refinery in the UK.

The UK plant is seeking to diversify its crude slate to improve cost efficiencies, switching from relatively expensive North Sea to crudes from North and West Africa as well as Canada, the spokesman said.