Essar Energy nets Shell's Stanlow refinery

London – Shell has agreed to sell its 270,000 barrel-per-day refinery at Stanlow, UK, plus associated marketing businesses, to Essar Oil (UK) Ltd for $1.3 billion.

The deal, which is set to close in the second half of 2011, covers oil products, chemicals manufacturing and access rights to certain distribution terminal assets. It also includes commercial fuels, bulk fuels and local marine fuels businesses linked to the refinery. 

The companies have agreed an exclusive five-year crude supply contract by Shell to Essar and into long-term agreements for the supply of products in the UK by Essar to Shell.

Shell is retaining its UK retail sites, higher olefins plant and alcohols units, lubricant oils blending plant, lubricants marketing business, aviation operations at airports and non-local marine business.

Also excluded from the deal are Shell’s marine lubricants, commercial road transport marketing businesses, bitumen marketing business or the Shell technology centre at Thornton.

Shell’s only refinery in the UK, the Stanlow site, near Ellesmere Port in Cheshire, employs around 800 people and processes 12 million tonnes of crude a year, mainly from the North Sea.

The site produces a range of oil products including about one sixth of Britain’s petrol - about 4,000 million litres a year - and around 15,000 million litres of kerosene a year.

The refinery’s crude oil arrives by tanker to Tranmere Oil Terminal on the south bank of the River Mersey. The crude oil is pumped from Tranmere through a pipeline to storage tanks at Stanlow, 15 miles away.

Distribution is mainly via road (50%) and pipeline (30%), while around 20% percent of the products leave via the Manchester Ship canal.

Shell first announced move to sell Stanlow Refinery and associated local marketing businesses back in 2009.

Shell’s downstream director, Mark Williams, said: “The decision to sell Stanlow is part of our drive to concentrate our global manufacturing portfolio on larger assets and, on completion, means we will have reduced our global refining exposure through a combination of asset sales and closures by a total of 1.6 million barrels since 2002.”

The sale will help secure Stanlow’s future, given Essar’s commitment to investment and intent to increase site throughputs, according to Frank Willsdon, Stanlow general manager.

“It can only benefit staff, business partners and the local community and region. After our many years with Shell, we now look forward to a smooth transition and moving forward with Essar,” said Willsdon.

Essar Energy describes itself as “an India-focused energy group” with operations and projects under construction and development in both the electricity generation and transmission industry and in the oil and gas industry.

The company is listed on the London Stock Exchange and has been in the FTSE 100 index of leading shares since last June. It claims to have assets of $8 billion across the power industry plus the oil and gas industry.

At present, Essar Energy’s refining business mainly comprises the Vadinar refinery, the second-largest private-sector refinery in India, together with a 50% interest in the Kenya Petroleum Refinery Ltd (KPRL).

The group has a 14-mmtpa refinery at Vadinar in Gujarat, which started commercial production on May 1, 2008. It has the capability to produce petrol and diesel suitable for use in India and international markets – about 70% of the refinery’s current throughput comprises ultra heavy and heavy crude oils.

Construction is under way on the Phase I refinery project to extend the refinery’s total throughput capacity to 18mmtpa (375,000bpd) by mid-2011. Upon the completion of the Phase I refinery project, the complexity of Vadinar refinery will increase to 11.8 from the current 6.1.

This will provide additional flexibility to process a higher percentage of heavy and ultra heavy crudes and produce a higher quality of refined product (EURO IV and EURO V fuels).

Essar Energy is to further expand the refinery’s capacity by 2 million tonnes to 20 million tonnes (405,000bpd) by September 2012.

The Vadinar refinery site has room for further expansion and currently there are plans to expand the refinery to 38 million tonnes per annum, subject to market conditions. Post this expansion, the refinery will have a complexity of 12.8.

The Vadinar refinery will also produce LPG, naphtha, light diesel oil, aviation turbine fuel and kerosene.

Essar Energy also holds a 50% interest in Kenya Petroleum Refineries Ltd (KPRL) with the other 50% held by the Government of Kenya. KPRL owns and operates the refinery in Mombasa, Kenya, and related infrastructure. It has a nameplate capacity of 4mmtpa, but is currently only processing 1.6mmtpa of crude oil, primarily Murban crude sourced from the United Arab Emirates.