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New crude blend to boost Kenyan refinery profits

16th April 2012

Kenya refiners switch from Murban crude to cheaper merchant blends

Changing crude blends can dramatically boost profits

The Kenya Petroleum Refineries Ltd (KPRL) will buy new blends of crude to boost profitability once it begins importing its own products for processing, Africa’s Business Daily reported on Sunday.

Currently, the refinery mainly processes the more expensive Murban crude to produce a range of products, including petrol.

Murban took up 99.68 per cent of the 1.73m tonnes of crude oil shipped into the country for processing in 2011, according to statistics by the Petroleum Institute of East Africa (PIEA).

This could change after 1 July when the refinery converts to a merchant facility that buys its own crude, processes it and sells refined products for the local and export markets. Currently, KPRL acts like a toll refinery where it processes crude on behalf of oil marketers for a fee.

“Murban crude is more expensive than other blends and that affects margins,” said KPRL managing director, Bimal Mukherjee. “There are other cheaper blends that can be used to give desired products.”

Analysts said that though Murban has for long been sought by refiners for its yield of diesel, deman for it has been falling due to lower profits.

“Most people go for what best suits them in terms of margins. Refining is about value addition, it’s better to have an affordable raw material and improve it to the best quality and sell the end product at a reasonable price,” said Mohammed Baraka, a consultant on petroleum issues.

The conversion of KPRL into merchant status will push its management to maximise on margins to stay profitable. Once the refinery starts processing its own crude, the move will free marketers to buy products from other international refineries as opposed to the current structure that requires them to process about 50 per cent of the monthly demand at the refinery.