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* Reliance is India's second most valuable listed company
* Shares slump amid domestic woes: https://tmsnrt.rs/2BXsjtu
* India's petrol is very expensive: https://tmsnrt.rs/2Ol51EM
* Reliance sees long-term future in petrochemicals
By Koustav Samanta and Promit Mukherjee
SINGAPORE/NEW DELHI, Oct 29 (Reuters) - Reliance Industries, currently India's second most valuable listedcompany, got rich by trading fuel across Asia, Africa and Europewhile effectively ignoring its home market.
Reliance's refineries processed crude from the nearby MiddleEast and sold fuel to fast-growing markets in North Asiaincluding China, Japan, South Korea and Taiwan.
That began to change when India's oil demand surged,overtaking Japan as the world's third-biggest consumer. Reliancetook more interest in the country's retail fuel sector and hasopened more than 1,300 service stations.
This push into the domestic fuel market may stumble afterIndia's government imposed cost controls on Oct. 4 on gasolineand diesel prices to rein in recent record highs.
Reliance's shares plunged 6.9 percent on the day of theannouncement and are down about 20 percent since their recordclose on Aug. 28.
The decline has pushed Reliance's market capitalization downto 6.64 trillion rupees ($90.47 billion) and it is no longerIndia's most valuable company, sitting behind Tata ConsultancyServices Ltd at 6.77 trillion rupees.
The price shock, driven by soaring crude import costs,angered consumers and triggered riots by farmers, forcing thegovernment to react at the cost of its refiners' health.
For now, Reliance is staying with its retail plans despitethe recent trouble.
"When prices are cut, you have to effectively match it,"said Venkatachari Srikanth, Reliance's joint chief financialofficer, during their earnings presentation on Oct. 17. "We arenot going to let this alter broadly our strategy on retailpetroleum."
In line with that, Reliance is planning as many as 2,000retail stations with oil major BP Plc over the next three years,local media reported on Tuesday.
Reliance's domestic push made sense in an Asian fuel marketthat is increasingly crowded with new refinery capacity from theMiddle East, Southeast Asia and China.
The new capacity, combined with soaring crude prices, haseroded profit margins for producing refined fuels.
With the domestic market now also under pressure from pricecontrols, some analysts have been spooked.
Sukrit Vijayakar, director of Indian oil consultancyTrifecta said the government move could "be disastrous forReliance."
The retail move puts Reliance into competition againstgovernment controlled refiners like Bharat Petroleum Corp, Hindustan Petroleum Corp and Indian OilCorp, the country's biggest refiner.
Reliance's domestic strategy initially won the backing ofinvestors and the retail fuels group was touted by companyChairman Mukesh Ambani in a speech at its annual general meetingin July.
Between January and August, Reliance's shares soared 45percent, far outpacing the state-owned refiners as well asIndia's main stock index, the Nifty 50, which gained12.5 percent.
But rising crude prices, which jumped from under $70per barrel in early 2018 to around $85 in early October, and atumbling rupee combined to push domestic fuel pricesto records, undermining Reliance's retail strategy despite somerelief from a dip in crude prices in recent weeks.
Still, Rohit Ahuja, senior vice president of India's BOBCapital Markets, which has a buy rating on Reliance, said signsof an "oil price shock" in India were "already visible."
Reliance may gradually mothball its retail stations becauseof the cost controls, said Macquarie Capital Ltd Analyst AdityaSuresh in a note on Oct. 5, though the bank expects nomeaningful impact on its earnings.
EXPORT MARKET & IMO 2020
Reliance may be better placed to thrive on exports despitethe increasing competition in Asia and the Middle East.
The company operates the world's biggest refinery complex atthe port of Jamnagar in the western Indian state of Gujarat. Thefirst Jamnagar plant can process 663,000 barrels per day (bpd)of crude while the second site can process another 709,000 bpd.
Reliance's refining margins last quarter were at a premiumof $3.40 per barrel over the average Singapore margin, thebenchmark for Asia.
However, the Singapore margin <DUB-SIN-REF> has dropped byabout 50 percent since mid-2017 because of rising crude prices.Reliance also said in its results that fewer refinery outageslast quarter meant global run rates were high.
Still, Reliance's refineries benefit from being among themost modern in the world.
Several units process residual fuel oil, the leftovers aftercrude oil is initially refined, into higher-value gasoline anddistillate products as well as remove pollutants such assulphur.
That ability to cut its high-sulphur fuel oil output tonearly nothing while maximising its diesel fuel output givesReliance an advantage as the International Maritime Organization(IMO) will require new low-sulphur fuel oil used in shipsstarting in 2020.
"IMO regulations are positive because of our mid-distillateconfiguration," said Reliance's Srikanth.
With a move towards cleaner fuels as part of IMO, BOBCapital's Ahuja said Reliance's gross refining margins couldrise by up to $5 per barrel.
Beyond IMO 2020 and the Indian fuel price turmoil, the oilindustry is threatened by the rise of electric vehicles andalternative fuels that could reduce oil's use as a transportfuel.
Refiners are looking at petrochemicals to replacepotentially lost demand in the transport sector.
"If I have to look at it from a 'oil demand hit fromelectric vehicles' perspective, it's going to be petrochemicalsthat's going to survive for them (Reliance) beyond ten years,"said Ahuja.
Combined, Reliance's refining and marketing group along withits petrochemicals division contribute more than 90 percent ofthe overall company revenues, its latest annual report showed.
Under Reliance's "Oil to Chemicals Journey" strategy thecompany is seeking to "upgrade all of our fuels to high valuepetrochemicals" over the next decade.
"We are focusing to produce and sell at every level," saidReliance's Srikanth. "Between whether to sell domestically or onbulk, whether we will export, every day is an analysis of whichis a better option."
($1 = 73.393 Indian rupees)
(Reporting by Koustav Samanta in SINGAPORE and Promit Muhkerjeein NEW DELHI; Writing by Henning Gloystein; Editing by ChristianSchmollinger)
