INSUBCONTINENT EXCLUSIVE:
Reliance's shares are down about 20% since their record close on August28.Reliance Industries, currently country's second most valuable
listed company, got rich by trading fuel across Asia, Africa and Europe while effectively ignoring its home market.Reliance's refineries
processed crude from the nearby Middle East and sold fuel to fast-growing markets in North Asia including China, Japan, South Korea and
Reliance took more interest in the country's retail fuel sector and has opened more than 1,300 service stations.This push into the domestic
highs.Reliance's shares plunged 6.9 per cent on the day of the announcement and are down about 20 per cent since their record close on
country's most valuable company, sitting behind Tata Consultancy Services Ltd at 6.77 trillion rupees.The price shock, driven by soaring
crude import costs, angered consumers and triggered riots by farmers, forcing the government to react at the cost of its refiners'
health.For now, Reliance is staying with its retail plans despite the recent trouble."When prices are cut, you have to effectively match
it," said Venkatachari Srikanth, Reliance's joint chief financial officer, during their earnings presentation on Oct
"We are not going to let this alter broadly our strategy on retail petroleum."In line with that, Reliance is planning as many as 2,000
retail stations with oil major BP Plc over the next three years, local media reported on Tuesday.Reliance's domestic push made sense in an
Asian fuel market that is increasingly crowded with new refinery capacity from the Middle East, Southeast Asia and China.The new capacity,
combined with soaring crude prices, has eroded profit margins for producing refined fuels.With the domestic market now also under pressure
from price controls, some analysts have been spooked.Sukrit Vijayakar, director of oil consultancy Trifecta said the government move could
"be disastrous for Reliance."The retail move puts Reliance into competition against government controlled refiners like Bharat Petroleum
Corp, Hindustan Petroleum Corp and Indian Oil Corp, the country's biggest refiner.Reliance's domestic strategy initially won the backing of
investors and the retail fuels group was touted by company Chairman Mukesh Ambani in a speech at its annual general meeting in July.Between
January and August, Reliance's shares soared 45 per cent, far outpacing the state-owned refiners as well as main stock index, the Nifty 50,
which gained 12.5 per cent.But rising crude prices, which jumped from under $70 per barrel in early 2018 to around $85 in early October, and
a tumbling rupee combined to push domestic fuel prices to records, undermining Reliance's retail strategy despite some relief from a dip in
crude prices in recent weeks.Still, Rohit Ahuja, senior vice president of BOB Capital Markets, which has a buy rating on Reliance, said
signs of an "oil price shock" in India were "already visible."Reliance may gradually mothball its retail stations because of the cost
controls, said Macquarie Capital Ltd Analyst Aditya Suresh in a note on Oct
5, though the bank expects no meaningful impact on its earnings.EXPORT MARKET IMO 2020Reliance may be better placed to thrive on exports
despite the increasing competition in Asia and the Middle East.The company operates the world's biggest refinery complex at the port of
The first Jamnagar plant can process 663,000 barrels per day (bpd) of crude while the second site can process another 709,000 bpd.Reliance's
refining margins last quarter were at a premium of $3.40 per barrel over the average Singapore margin, the benchmark for Asia.However, the
Singapore margin has dropped by about 50 per cent since mid-2017 because of rising crude prices
Reliance also said in its results that fewer refinery outages last quarter meant global run rates were high.Still, Reliance's refineries
benefit from being among the most modern in the world.Several units process residual fuel oil, the leftovers after crude oil is initially
refined, into higher-value petrol and distillate products as well as remove pollutants such as sulphur.That ability to cut its high-sulphur
fuel oil output to nearly nothing while maximising its diesel fuel output gives Reliance an advantage as the International Maritime
Organization (IMO) will require new low-sulphur fuel oil used in ships starting in 2020."IMO regulations are positive because of our
mid-distillate configuration," said Reliance's Srikanth.With a move towards cleaner fuels as part of IMO, BOB Capital's Ahuja said
Reliance's gross refining margins could rise by up to $5 per barrel.Beyond IMO 2020 and the fuel price turmoil, the oil industry is
threatened by the rise of electric vehicles and alternative fuels that could reduce oil's use as a transport fuel.Refiners are looking at
petrochemicals to replace potentially lost demand in the transport sector."If I have to look at it from a 'oil demand hit from electric
vehicles' perspective, it's going to be petrochemicals that's going to survive for them (Reliance) beyond ten years," said Ahuja.Combined,
Reliance's refining and marketing group along with its petrochemicals division contribute more than 90 percent of the overall company
revenues, its latest annual report showed.Under Reliance's "Oil to Chemicals Journey" strategy the company is seeking to "upgrade all of our
fuels to high value petrochemicals" over the next decade."We are focusing to produce and sell at every level," said Reliance's Srikanth
"Between whether to sell domestically or on bulk, whether we will export, every day is an analysis of which is a better option."
