Refinery Sludge Signals Profit From Fuel Indian Processors Spurn

Aadi Group, a privately-owned trader of scrap metal and steel, is seeking to profit from turning refinery waste into fuel oil, a product spurned by the country’s crude processors.

The company is making 25,000 metric tons a year from refinery sludge at a distillation plant in Gujarat in west India, according to Anish Mehta, the chief executive officer of Aadi Oil Pvt Ltd. The unit supplies fuel to industrial users such as power plants and steel mills, he said in a May 16 e- mail. Aadi also plans to start making bitumen from black pitch, a by-product at the plant, from September this year, he said.

The company is making fuel oil as Indian refiners such as Reliance Industries Ltd. (RIL) and Essar Oil Corp. shun production of the fuel burned by utilities and ships. The product sells at a discount to crude and incurs losses for refiners, while gasoline and diesel reap profits.

“The big players were getting out of fuel oil,” Mehta said. “They get the higher margins from making gasoline and diesel, and we get the market share for fuel oil.”

Prices in Singapore, a benchmark for Asia, were at a discount of $1.50 a barrel to Dubai crude May 22, according to data from PVM Oil Associates, a broker. In comparison, gasoil traded at a premium of $15.72 a barrel, PVM data showed.

Using refinery sludge allows Aadi to make fuel oil more profitably than the major refiners as the feedstock costs less than crude, Mehta said. The company blends high-sulfur, “off- specification” fuel that it imports from the Middle East with the plant’s output. The resulting product, which is a lower- sulfur fuel that meets customer requirements, is sold in the Indian domestic market, he said.

Indian Refiners

Reliance’s two plants in Jamnagar, the world’s biggest refining complex, and Essar’s adjacent facility in western India are equipped with delayed coker units, which help break down heavy crude components into lighter products without leaving a residue of fuel oil.

Aadi also plans to develop its coal imports business this year and wants to start bringing in 35,000 tons a month from Indonesia and South Africa, Mehta said.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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