RIL signs agreement with Mitsui to ship liquefied ethane

Reliance Industries has signed shipping agreements with one of the world’s largest shipping companies, Mitsui OSK Lines Ltd (MOL), for transporting liquefied ethane from North America to India.

MOL will supervise the construction of six Very Large Ethane Carriers (VLECs), ordered by Reliance. MOL will also operate and manage the vessels after these are built and delivered.

“Reliance, with this strategic tie-up with MOL, has achieved a key milestone for the successful implementation of its ethane import project to feed crackers in India,” RIL said in a press statement.

In August, RIL decided to source 1.5 million tonnes per annum of ethane from the US to feed its cracking units in India. This could save the company Rs 2,000 crore annually, analysts estimate.

RIL is the first Asian company to announce plans to import US ethane. Two European chemical companies, Switzerland-based INEOS, and Austria-based Borealis AG, have announced similar feedstock shipment arrangements.

The cost of feedstock is the largest, that petrochemical companies bear. Currently, there are three naphtha-based, three gas based and one mixed feed cracker complex in the country. Feedstock accounts for 40-60 per cent of costs.

While naphtha for petrochemical units is easily available, propane and butane are not easy options considering the pricing and domestic availability. Liquefied natural gas imports have therefore been increasingly resorted to.

RIL is primarily a naphtha-based petrochemical player.

RIL said it had executed storage and capacity agreements for liquefaction and export of ethane with a North American terminal.

“The ships are expected to be delivered starting the last quarter of 2016, in synchronisation with the readiness of the terminal in North America. The proposed capital expenditure of $1.5 billion (Rs 9,000 crore) for this includes $723 million (Rs 4,338 crore) for building six of the world’s largest ethane carriers through Samsung Heavy Industries, South Korea. Imports will commence from second half of calendar year 2016,” RIL had said in August.

Reliance is also building a world-scale receiving and storage facility in India for liquefied ethane and apipeline to deliver ethane to its crackers. It will also be upgrading its crackers to maximise cracking of ethane.

“The project will significantly improve the long-term competitiveness of our cracker portfolio through dedicated feedstock, enhanced margins, higher capacity and end-to-end integration,” RIL had said.

RIL is nearly doubling its petrochem capacity by FY16. About 60 per cent of RIL’s $30 billion (Rs 1.8 lakh crore) plan over five years is towards core businesses.