Rise in demand improves trading picture for Cheshire oil refinery

Stanlow

Oil refiner, Essar, is close to returning to pre-COVID levels of business, it revealed in an update today (Wednesday, January 5).

The company, which operates a major refinery at Stanlow, in Cheshire, said December 2021 saw its highest monthly volume of product sales for 18 months since the start of the pandemic, across both fuels and petrochemicals.

Essar had been impacted by the sudden drop in demand for fuel when pandemic lockdowns were first introduced, resulting in the grounding of most airline fleets and a huge reduction in road traffic.

But in May, last year, the business confirmed it had secured new financial arrangements of more than $850m. And last September it agreed a new ‘time to pay’ (TTP) deal with HM Revenue and Customs regarding outstanding VAT payments.

Today, it said demand is now back to 95% of pre-COVID levels, and the business said it is re-entering the Irish market, having recently secured a contract to supply fuel, starting this month.

Despite the significant impact of the pandemic across the entire refining industry, including a period during which fuel demand was at very low levels, Essar continued to operate the Stanlow manufacturing complex, on the banks of the River Mersey, at a significant capacity to ensure adequate fuel supply to customers across the UK.

It said Stanlow remains a key strategic national asset, annually producing more than 16% of the UK’s road transport fuels.

The continued strength in both demand and product margins in the market means that Essar Oil UK is now generating EBITDA at an annualised rate of approximately $300m.

This is approaching the levels seen in the five years prior to the onset of the coronavirus pandemic. Market analysts expect strong demand for refined products in the coming years on the back of a robust recovery in economic activities globally, and particularly in the UK.

Today’s update also confirmed that, in addition to the $1.1bn total of new financial arrangements agreed last year, extra financing has been secured during the quarter ending December 31, 2021, with last mile financing on plan to complete in the next couple of months.

Essar also revealed that, in relation to its TTP arrangement, the company has successfully made all due payments in the three months to December 2021, and is on course to complete the balance in the quarter ending March 31, 2022.

Deepak Maheshwari, Essar chief executive, said: “Over the last quarter, the company has been able to strengthen its financial performance due to improvements in the product market and delivery of reliable and stable operations at Stanlow.

“We have also closed the defined pension benefit scheme for future accruals, which will provide long term security of competitiveness for the company.”

He added: “Going forward, we will invest in projects such as HyNet which will enable the country’s transition to a low carbon economy.”

In May, last year, Essar secured a £7.2m grant from the Industrial Energy Transformation Fund as part of its project to decarbonise the Stanlow refinery.

The scheme involves the installation a new furnace in the crude distillation unit that will be able to run on a 100% hydrogen fuel source, produced by the HyNet North West project at Stanlow.

Together with HyNet, Essar has also announced plans to create a new facility to convert non-recyclable household waste into sustainable aviation fuel (SAF) for use by airlines operating at UK airports.

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