"Given depressed US ethane prices and rising production, we estimate an annual saving of USD 450 million from this feedstock substitution from FY18," CLSA said in a research report.
Reliance Industries will save about USD 450 million annually by importing 1.5 million tons ethane from US for its petrochemical plant, says a report.
Imported Ethane will substitute its current propane imports and a portion of naphtha used for ethylene production.
"Given depressed US ethane prices and rising production, we estimate an annual saving of USD 450 million from this feedstock substitution from FY18," CLSA said in a research report.
Reliance recently announced its plans to import 1.5 million tons per annum of ethane from North America which will be used as a feedstock in its existing crackers in India.
The company has executed storage and capacity agreements for liquefaction of ethane with a North American terminal and has also ordered six VLECs (Very Large Ethane Carriers) for transporting ethane to India.
Imports could start from end-2016. CLSA said: "While propane is a globally traded commodity, trade of ethane is a relatively new trend as it needs very low temperatures (minus 89 degrees Celsius) to be maintained."
Reliance's current ethylene capacity stands at about 1.9 million tons per annum. Of this, 0.8 million ton (40 percent) is gas (C2-C3) based while the remaining uses naphtha as a feedstock.
"As per our estimate, domestic natural gas makes up about 35 percent of current feedstock for its gas based capacity with imported Propane accounting for the rest," CLSA said.
Reliance is also likely to convert a large portion of its 0.9 million tons naphtha based Hazira cracker into dual feed to enable acceptance of imported ethane as a feedstock.
"Given current US ethane price of about USD 3, we estimate landed ethane price of USD 9 per million British thermal unit. Using current imported propane and naphtha price of USD 17 and 20 per mmBtu respectively, this arbitrage will reduce RIL's FY18 blended feedstock cost significantly. We estimate annual savings from FY18 of USD 450 million (USD 240 per ton) i.e. 8 percent of FY14 Ebitda," CLSA said.
This implies an attractive 3.3 years payback to USD 1.5 billion estimated investment on the project.
The cracker will be commissioned in the second half of 2016. It will nearly double its ethylene production capacity to 3.3 million tons a year.
The company has ordered six very large ethane carriers from South Korea's Samsung Heavy Industries for USD 723 million.
The vessels of 87,000 cubic meters each, will be the world's first very large carriers of ethane.
Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group.
Reliance stock price
On August 22, 2014, Reliance Industries closed at Rs 994.35, up Rs 0.30, or 0.03 percent. The 52-week high of the share was Rs 1142.50 and the 52-week low was Rs 765.00.
The company's trailing 12-month (TTM) EPS was at Rs 68.90 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 14.43. The latest book value of the company is Rs 609.40 per share. At current value, the price-to-book value of the company is 1.63.
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