Adani Ports and IOCL ink oil storage deal

In the midst of the sharp fall in the Indian markets, the stock of IOCL rallied sharply on Tuesday. The reason was essentially the deal that it has struck with Adani Ports and SEZ for augmenting its crude oil volumes at the Mundra Port.

Incidentally, the Mundra Port is the flagship port of the Adani group and is now emerging as the virtual economic gateway for the Indian export economy. But let us quickly look at what this deal is all about.

Adani Ports SEZ inked an agreement with Indian Oil Corp (IOCL) to help augment IOC’s crude oil volumes at the Mundra port. IOCL which imports crude directly into the Mundra port in Gujarat to feed its Mathura refinery via pipeline has been using Mundra Port as one of its key import points.

To handle rising demand for crude, IOCL will expand its existing crude oil tank farm at Mundra Port, enabling to handle and blend additional 10 MMTPA at Mundra.

The idea is to support the expansion of IOCL’s Panipat Refinery located in the state of Haryana in North West India. IOCL will be raising the refining capacity at its Panipat Refinery by 66% to a level of 25 MMPTA.

Adani Ports SEZ has confirmed that it was fully equipped to handle additional 10 MMTPA crude at its existing single buoy mooring (SBM) at Mundra. Both companies are confident that this should set the stage for a longer term partnership.

There are reasons why this deal will be crucial. Currently, IOCL accounts for 50% of India's petroleum products with refining capacity of 80.55 MMTPA, supported by a network of 15,000 KM of transportation pipelines.

Currently, the Panipat refinery at Haryana requires 15 MMTPA and this is being partially handled by Mundra Port. Incidentally, Mundra SBM is located 3-4 kms off the coast where Very Large Crude Carriers (VLCCs) unload crude oil.

The current system is that an undersea pipeline transports this crude oil from the VLCC offloading SBM to the crude oil tank farm. From the tank farm, the oil is then transported to the Panipat refinery at Haryana via the Mundra Panipat Pipeline (MPPL).

This is not only an economical method of moving crude but also a safer and a more robust and efficient method of ensuring relentless supplies to the refinery at Panipat.

IOCL has been assigned an exclusive crude oil tank farm at the Adani Ports Mundra SEZ. It currently has a total of 12 tanks with an existing total capacity of 7,20,000 KL.

With the addition of the 9 new tanks that is now being proposed at the Mundra Tank Farm, the storage capacity of IOCL at Mundra tank farm will go up by 75% to 12,60,000 KL of augmented storage capacity and will be IOCL’s largest port based crude oil storage facility.

The deal also entails the augmentation of the MPPL (Mundra Panipat Pipeline Limited) pipeline capacity by IOCL to 17.5 MMTPA. For IOCL, this will entail a capital expenditure of Rs.9,000 crore and the same has already been approved by the IOCL Board of Directors.