India's Reliance posts 28% growth in Q1 oil, gas revenues despite headwinds

India's Reliance Industries Ltd witnessed a robust 27.8% year-on-year growth in oil and gas revenues in the April-June quarter despite volatile energy markets and global macroeconomic headwinds, as improved domestic business outlook created opportunities for both downstream and upstream businesses.

The company added that despite a decline in product margins, optimized feedstock sourcing and operational flexibility supported profitability, while a diversified portfolio across consumption baskets underpinned a strong growth outlook, it said July 21 when announcing first-quarter results.

"The O2C oil to chemical business delivered a resilient performance despite continuing global macro headwinds," Mukesh Ambani, Reliance's chairman and managing director, said.

Revenues from its oil and gas segments in the first quarter of fiscal year 2023-24 (April-March) stood at Indian Rupees 46.32 billion ($565 million), a growth of 27.8% year on year and a 1.7% growth quarter on quarter.

"Demand growth for fuels and chemicals in India among the highest globally, providing for margin improvement and optimization opportunities," the company said in a presentation to investors.

On a year-on-year basis, India's Q1 domestic demand for diesel, gasoline and jet fuel increased 8.1%, 6.8% and 13.3%, respectively, Reliance Industries said. It sold 17.2 million mt of refined oil products in the quarter, up 1.8% from the year-ago quarter.

"Going forward, Reliance expects fuel crack margins could be supported with rising demand and limited Chinese exports. For downstream chemicals, new supply from China is likely to keep a cap on margin recovery in the near term," Bernstein Investment Research said in a note.

Reliance operates the world's biggest refinery complex at Jamnagar in Gujarat on the west coast of India. Its domestic-focused refinery has a capacity of 33 million mt/year (660,000 b/d), while the export-oriented plant at Jamnagar has a capacity of 35.2 million mt/year (704,000 b/d).

Market implications

The company's total throughput at its Jamnagar refinery complex inched 0.5% lower on the year to 19.7 million mt in the April-June quarter, the company said. The lower throughput was attributed to weaker demand amid destocking on recessionary fears and high interest rates, as well as the slower-than-expected ramp-up in the China market.

Analysts said a year-on-year comparison for throughput would be skewed as the year-ago quarter witnessed historically high fuel cracks due to the Russia-Ukraine conflict.

"The first quarter of last financial year saw once-in-a-generation dislocation of energy markets, which drove fuel margins to historic levels," said V. Srikanth, CFO, Reliance Industries Limited, when addressing the media and analysts.

"There was a sharp correction in fuel cracks with higher supplies and global macro headwinds -- a 60%-70% decline in fuel cracks from exceptionally high levels in the previous year," Reliance said, highlighting the scenario for the quarter.

Gasoline 92 RON cracks fell year on year to $12.10/b in Q1 from $29.80/b in Q1 of last year and fell quarter on quarter from $15/b. Continued availability of Russian products despite sanctions and price caps kept the cracks under pressure. Growing supplies from new refineries further prompted cracks to fall, the Bernstein note showed.

During the quarter, Reliance executed a planned shutdown of the fluid catalytic cracker feed hydrotreater at Jamnagar.

Brent crude averaged $78.40/b in the April-June quarter, down 31.2% from the year-ago quarter and 3.6% lower from the previous quarter. Global oil demand rose 2.8 million b/d year on year to 101.4 million b/d due to robust growth in consumption, mainly from China, the Middle East and Asia, the company added.

Crude oil benchmarks fell due to macroeconomic headwinds from high interest rates and lower industrial activities in the US and the EU, the company said, adding that continued Russian oil supply despite the EU ban and production cuts announced by OPEC+ helped to keep the market in surplus during the quarter.

Global refinery throughput was higher by 1.9 million b/d on the year but slipped 0.1 million b/d on the quarter to 81.8 million b/d in the April-June quarter, it said.

Gas, petrochemicals outlook

In the quarter, Reliance's share of production from the Krishna-Godavari basin, popularly known as the KG-D6 block, was 42.9 Bcf, compared with 40.8 Bcf in the year-ago quarter, on account of higher price realization for gas output.

Reliance realized an average gas price for the KG-D6 block of $10.81/MMBtu in the quarter compared with $9.72/MMBtu a year ago.

The KG-D6, discovered in 2002, is India's largest deposit of natural gas. With incremental gas production from the MJ field, along with ongoing production from R Cluster and Satellite Cluster fields, the KG-D6 block is currently producing 27 million cu m/d and is expected to reach 30 million cu m/d in coming months, it said.

India's polymer and polyester demand during the quarter improved 16% and 5% year on year, respectively, Reliance said.

Polymer prices declined year on year on subdued demand from China, the US and the EU and on destocking due to the volatile energy price environment, it said. Prices declined across polymers with polypropylene prices down 24%, polyethylene 22% and polyvinyl chloride 40% year on year, the company said.

Reliance said domestic polymer demand rose 16% year on year due to a pick up in consumer activity and government spending.