Reliance Industries will invest about $16 billion in expanding petrochemical production capacity and lower feed and fuel costs to boost profits.
RIL, according to a report by Barclays Equity Research, is investing $4.6 billion in an integrated gasification combined cycle (IGCC) project that will convert captive petrocoke to synthetic gas (syngas) which can be used to generate power, steam and hydrogen, which currently are being produced using expensive imported LNG.
Refinery off-gas from this unit will be used to extract petrochemical compounds like ethane, ethylene, propylene, butanes and propanes at a $4.5 billion Refinery off-gas cracker (ROGC). Another $5 billion is being spend on expanding polyester production capacity.
The firm will spend another $1.5 billion to import ethane from US to replace higher cost propane imports and naphtha, it said.
The projects will be completed by FY18.
"Reliance is in the midst of a $16 billion capex plan to raise polyester capacity by some 60 per cent in aggregate across four locations, to set up a new 1.5 million tonnes refinery off-gas based petrochemical cracker and downstream units in Jamnagar, enhance refining profitability via petcoke gasification and to reduce feedstock costs for petrochem by importing cheap US ethane," it said.
Barclays said the projects will help add an estimated $1.2 billion to pre-tax profit and Rs 14 per share to earnings per share (EPS) by FY18.
"Overall, we expect the new projects and higher gas prices to double Reliance's earnings and return on capital employed (ROCE) in FY16-21," it said.
The IGCC will allow RIL to generate syngas from captive and bought petcoke. This syngas will generate power, steam and hydrogen and be used as fuel for the refinery allowing it to replace LNG and internal refinery off-gases which will be fed to a new $4.5 billion petchem unit (ROGC).
"With LNG prices at $13.5 per million British thermal unit, replacing 7.5 million standard cubic meters per day of imports would save $1.3 billion.
"In addition, the transfer of the 10.5 mmscmd of refinery off-gases, at say $10 per mmBtu, would allow the refining segment to earn an additional $1.6 billion," the report said.
Barclays said the refinery would, however, now need to find new sources for the energy for its internal uses.
"Our understanding of the process balance of the petcoke plant, refinery and the new cracker suggests that 75 per cent of the internal use (power, steam, fuel, hydrogen) could come from the IGCC while the rest, primarily fuel and hydrogen, could come from co-products and lean gas residual stream of the new petrochemical cracker," it added.