Understanding refinery economics to estimate Gross Refinary Margin:

The current capital cost of a green-field refinery would be c.Rs1,000/MT per complexity (c.$22/MT/complexity), while the operating cost is c.$1.0-1.5/bbl. It is worth noting that this capital cost would vary with the size of the unit (min. economic size of refinery is c.100,000bopd), costs such as utilities, capex on port/jetties for crude transportation and other costs. 

Below estimates the GRMs needed to make a refinery viable at above assumption.

Refinery economics
Capex (complexity of 4)	$12/barrel
(+) Working capital at $60/barrel and 60 days inventory	$5/barrel
(=) Total funding required	$17/barrel
(+) Operating Cost	$1/barrel
(+) Interest Cost (1/1 debt/equity, interest at 10%)	$0.85/barrel
(=) Cash cost	$1.85/barrel
(+) RoE at 15%	$1.28/barrel
Total Cost (excluding depreciation)	$3.13/barrel
Source: International Energy Agency – Medium Term Oil Market Report 2009 Edition

Hence, the minimum GRMs needed for sustaining a typical refinery of complexity 4 would be $1.85/barrel. This does not include non-cash cost (c.$1.3/barrel + depreciation). Thus, new refinery projects (of complexity 4) are unlikely to be established unless the GRMs are atleast $1.3bbl + cash cost. Existing refineries are typically sold at 30-50% the cost of a new refinery and hence, for an existing refinery, the cash cost (excluding depreciation and return on equity) would come down to $1.5bbl. Therefore, if simple GRMs are below c.$1.5bbl, even existing simple refineries would find it difficult to be viable.

__________________________________________________________________________________