Nayara Energy: refinery operating at healthy run rate

Nayara Energy: refinery operating at healthy run rate

Nayara Energy, a private Indian refiner, is navigating through challenging times due to EU sanctions, but its Vadinar refinery continues to operate at a healthy run rate. The refinery, with a capacity of 400,000 barrels per day (b/d), has been significantly impacted by the sanctions, which were imposed on July 20, 2023, due to its Russian ownership and support for the Kremlin's war in Ukraine [1].

Despite the sanctions, the refinery has managed to maintain a substantial level of operations. As of late July, the refinery was operating at nearly 70% of its capacity [2]. This is a testament to the resilience of Nayara's operations and its ability to adapt to the changing geopolitical landscape.

One of the key strategies employed by Nayara is its pivot to the Asian market. The refinery has redirected its shipments to countries like the UAE, Singapore, and Oman, where EU restrictions carry less weight [1]. This shift has allowed Nayara to continue exporting its products, albeit at a reduced volume. For instance, in July 2023, 8 tankers loaded with refined products at the port of Vadinar, with four headed to the UAE, one to Oman, two to Singapore, and one to Pakistan [1].

Moreover, Nayara has been focusing on its domestic market to secure future sales. The refinery's existing network of over 6,500 retail stations, coupled with its plan to add 400 more in 2025, positions it well to absorb a greater share of its own output [1]. This strategy is a defensive buffer against external shocks and ensures that the refinery remains profitable even as its traditional seaborne routes are reshaped by geopolitics.

However, sustaining this strategy hinges on securing feedstock and keeping cash flows intact. Russia's flagship Urals crude accounted for 90% of Nayara's refinery runs in fiscal year 2024-2025, but flows have dropped sharply since sanctions took effect in late July [1]. Despite this, Rosneft-owned cargoes continue to head towards Vadinar, indicating that the Russian oil firm will keep supplying its embattled asset.

Nayara has also faced challenges in payment issuance and receipt due to the sanctions. The refiner has sought advance payment or letters of credit before its fuel shipments are loaded, while cutting run rates at its Vadinar refinery [2]. Additionally, domestic shippers have pulled out from collaborating with Nayara, leading the company to turn to surface transport to bring more of its fuel to market [2].

In conclusion, while Nayara Energy faces significant challenges due to EU sanctions, its Vadinar refinery continues to operate at a healthy run rate. The company's strategic pivot to the Asian market and focus on its domestic market are key factors contributing to its resilience. However, the long-term sustainability of these strategies will depend on securing feedstock and maintaining cash flows.

References:
[1] https://oilprice.com/Energy/Energy-General/Indias-Huge-Nayara-Refinery-Focuses-On-Domestic-Market-As-Sanctions-Hit-Hard.html
[2] https://gcaptain.com/sanctions-choke-crude-shipments-to-indian-refiner-nayara/