Essar Oil, Sinochem, and Reliance Industries are seen as global consolidators of refinery assets, while European and American companies are facing intense pressure, low margins, and low valuations for their refineries, industry insiders said. Essar Oil, the Indian oil and gas company, looks poised to buy a number of refineries from Shell, and is considering further deals. "We are in talks with Shell for its refineries, but it is early for us to comment on a closing date and size of the deal. We will continue to look for growth opportunities globally," said an Essar Oil spokesperson. Sinochem, the Chinese conglomerate, "always keep close eyes on refinery assets in global regions and would be very open to target approaches," a company source told this news service. Reliance Industries, the listed Indian conglomerate, is "cash rich" and "in a position to evaluate opportunities globally," a spokesperson for the company told this news service. “We would not comment on any specific deals in [a particular region] but we are always looking at opportunities everywhere," said the spokesperson. Reliance Industries operates the Jamnagar refinery complex, the world's largest. However, current valuations may be leaving some owners reluctant to sell. "Valuations are down. Refinery sales will probably pick up when valuations pick up a bit," said an American industry source. Two million barrels-per-day of refinery capacity are for sale globally, an insider at Tupras, the Turkish listed refinery company, told this new service. The refinery sector came under intense pressure in 2009, and with low margins, many firms were losing money, the insider said. This has led to a number of refinery assets being placed, some openly, some discreetly, on the market. "Marginal refineries in the US are for sale, maybe not actively, but they would consider offers," said the American industry source. "Large companies, Shell, Exxon and others, they all have marginal refineries here." While a number of refineries are operating efficiently and effectively, the source said, some are "facilities on the edge, not so profitable." "I think it really depends on location and access to markets, but I could see [both China or India] buying in the US," the source said. The sector is struggling against both a slow decline in demand for refinery products, and overcapacity, the Tupras insider said. "Someone needs to close," he said. Though Tupras has a "strong balance sheet" and refineries on the market have low valuations, Tupras is not interested in the acquisitions such as the Shell refineries, as it "wouldn't be profitable," the insider said. But India and China may be focused on empire-building rather than strict considerations of their bottom lines; and both countries have strong domestic markets to encourage them. "I think when you look at the Chinese they just have a lot of dollars to spend on assets and infrastructure, it’s been their mode recently to take the dollars and spend on production capacity," the American industry source said. China National Petroleum Corporation, China’s state-owned oil and gas company, and Sinochem are the Chinese firms most likely to be interested in overseas refinery assets as both firms have ambitious expansion plans, an industry analyst in China said. Refinery assets in South America would be more attractive to Chinese firms given the number of Chinese companies have acquired oil fields there. South America and the USA also have a big demand for oil, which could bring considerable profit to those buying refinery plants, an industry banker said. Chinese energy companies would have less confidence to independently operate refinery plants in Europe. It would be a better choice for Chinese players to set up a new refinery plant in Europe with a local joint-venture partner, the banker said. Despite agreement that overcapacity will lead to the closure of some refineries around the world, the expectation of firms from India and China seem to be that "somebody else is going to have to take the pain," the insider at Tupras said. At the same time, with expectations that refineries will close, "any assets you get your hands on at these [low] prices are good assets," the insider said. by Caleb Lauer in Istanbul, Yumin Wang in Shanghai, Hana Askren in New York, and Mithun Varkey in Mumbai
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