Indian Oil Cuts Refinery Output as Rains Hit Fuel Demand: Report

New Delhi: Indian Oil Corp, the country's biggest refiner, has cut throughput at five key plants after heavy rains curbed demand for diesel in northern and eastern India, a company source with direct knowledge of its operations said.

A late revival of monsoon rains this month has alleviated power shortages thanks to improved hydroelectric supply, reducing demand to run generators needed to keep the lights on or use diesel pumps to irrigate crops. Devastating flooding has also hit fuel demand in Kashmir.

Diesel accounts for over 40 per cent of refined fuels consumed in India, but demand growth has weakened, in part due to sustained price rises.

Diesel demand grew by just 1.7 per cent in April-July, the first four months of this fiscal year, after contracting last year for the first time in more than a decade.

"We have cut throughput of our Mathura, Barauni, Koyali, Haldia and Panipat refineries due to low demand for fuels," the source told Reuters on condition of anonymity.

Indian Oil and subsidiary Chennai Petroleum Corp together control about a third of the country's 4.3 million barrel per day (bpd) refining capacity.

The five refineries account for about 93 per cent of IOC's directly owned 1.08 million bpd of crude processing capacity.

A sustained rise in diesel prices has steered industrial consumers to alternate fuels and led to a rise in sales of gasoline-powered vehicles. During the monsoon season industrial activity slows, putting further pressure on local diesel demand.

"We have to cut runs," the source said. "Product is not getting lifted, there is no demand, our inventory is full and we cannot export product as these are landlocked refineries."

IOC is operating its 120,000 barrel-per-day Barauni refinery in Bihar at half-capacity as it has shut two crude units at the plant, the source said.

"The other four refineries are operating at about 80 per cent capacity," the source said, adding the 150,000 bpd coastal refinery at Haldia in eastern India is facing a problem with a lack of storage space for diesel and bitumen.

IOC's fuel depot at Dumad area in flood-hit Gujarat is under water and storage tanks are full, forcing the refiner to cut runs at its 274,000 bpd plant, the source said.

Sanjiv Singh, head of refineries at IOC, confirmed cuts to throughput at a few refineries, but said the impact was temporary and seasonal.

"This year it got worse and (more) visible because of the delayed monsoon, and heavy rains are confined to a shorter duration. The situation will be shortly improved," Mr Singh said.

He added IOC was "using this opportunity to carry out maintenance work".

Officials at other state refiners including Bharat Petroleum Corp, Hindustan Petroleum Corp, Chennai Petroleum Corp and Mangalore Refinery and Petrochemicals said there were normal operations at their plants, as they are mainly on the coast.

BPCL offered its first Euro III diesel export cargoes, which had been meant for domestic use, last week as the domestic inventory is at high levels due to lower demand.

Copyright @ Thomson Reuters 2014