Reliance Industries and Essar Oil [Get Quote], India's largest private sector oil refiners, are set to create the world's biggest petroleum refining hub as part of plans to expand their plants in Jamnagar, western India.

Essar has announced a $6bn expansion plan to more than triple capacity at its refinery, while Reliance [Get Quote], at its site a few kilometres away, is working on plans to almost double capacity.

The expansion projects will bring their combined refining capacity at Jamnagar to 1.9m barrels a day, the largest in the world in a single location, outstripping hubs such as Rotterdam and Singapore and those in China and South Korea, according to figures compiled by Fesharaki Associates Consulting and Technical Services, Singapore.

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The plants at Jamnagar will mostly handle crude imported from the Middle East for refining and re-export, underlining India's growing role as an offshoring hub not only for computer services but also for more traditional industries.

Analysts say the challenge for Reliance and particularly Essar will be execution, with a boom in refinery construction creating shortages, long lead times and high prices for new orders of plant and equipment.

There is concern that the global refining industry could head into over-capacity if all existing expansion plans are realised.

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Under their plans, Essar announced it was lifting capacity at its plant to 700,000 b/d by 2010 from 220,000 b/d. Reliance is in the middle of a $6bn investment to expand capacity to 1.24m b/d from 660,000 b/d by next year.

Once the expansion works are complete, the nearest comparable hub will be South Korea's Ulsan at 1.35m b/d, Facts said.

Prashant Ruia, Essar group director, said the total development cost of the refinery including the expansion would be $9bn, which analysts consider extremely cheap against the global average of about $13bn-$15bn for the same size plant.

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"Most of the basic infrastructure is already built," said Mr Ruia. "So it's more like a brownfield expansion as opposed to a complete greenfield expansion."

Mr Ruia said the plant would process heavier crudes than most European and US refineries, resulting in higher margins, and produce high-specification products conforming to the latest emission standards.

Essar will finance the expansion by selling $2bn in shares to the controlling shareholders and paying for the remainder with debt.

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