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India’s “mega-handshake” with Saudi Aramco

Fiinews by Fiinews
April 14, 2018
in Contract, Exports, Imports, Investment, Logistics, Power, Projects, Technology
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US$44bn refinery-petrochemical complex

Nasser signing the MoU.

 

India’s “mega-handshake” with Saudi Aramco for mega-refinery and petrochemical complex came with a joint refinery-petrochemical complex investment.

Commentary by Serena Huang, senior analyst, Wood Mackenzie.

On 11 April, Saudi Aramco signed a memorandum of understanding to build an integrated refinery and petrochemicals complex with a consortium of India’s public sector undertakings (PSUs) – Indian Oil Corp Ltd, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd.

The 1.2 million b/d refinery, estimated to cost US$44 billion, is slated to be the largest refinery in Asia. It will be at Nanar in the Ratnagiri district of Maharashtra state.

This development is the fruit of many government-level discussions, which will provide a shot in the arm for Prime Minister Narendra Modi in time for India’s 2019 elections and for Saudi Aramco ahead of its initial public offering.

For India, this is a strategic partnership and a significant milestone.

The country’s oil demand is rising by 120kb/d annually over the next five years, fast outpacing the average 45kb/d per annum PSUs capacity expansion within the same period.

Because of the under-investment, PSUs will see their combined gasoline and middle distillate deficits rising to 630 kb/d by 2023.

If India is to be self-sufficient, the need for new capacity to meet the growing demand in the longer term is clear.

Assuming no further increase in private refiners’ (such as Reliance and Essar) supply to the domestic market, we estimate that Indian PSUs would need to add between 150 kb/d to 200 kb/d of new refining capacity every year to maintain self-sufficiency in transport fuels between 2025 and 2035 even with this new refinery.

Furthermore, adding a prominent crude producer as a partner provides long-term crude supply security and help with financing such a large-scale project.

The grassroots refinery’s integration with a petrochemical complex producing about 18 million tons per annum (MMTPA) chemical products serves to meet the country’s rising chemicals demand.

While the configuration of the petrochemical complex has not been finalised, prior indications from the Indian consortium have placed the ethylene capacity for the project at 3 MMTPA.

This figure is double that of the current largest domestic cracker owned by Reliance at Jamnagar.

Structurally, despite investments in the ethylene chain, India will remain a net importer of ethylene derivatives, especially polyethylene.

It will likewise remain net short of polypropylene. Thus, the planned petrochemical complex should supplement India’s rapidly growing polyolefins demand.

For Saudi Aramco, this could be its largest refining investment in Asia as well as its third consecutive one, following its deals with Indonesia’s Pertamina on the Cilacap refinery expansion in 2016 and Malaysia’s Petronas on the RAPID development in 2017.

The move brings the company one step further in its corporate strategy of raising its global refining capacity towards 10 million b/d to secure its crude disposition and diversify its portfolio by expanding its downstream assets.

Amongst its global refining assets, Ratnagiri will be its second-largest refinery after Motiva refinery in Texas.

Overall, this joint refinery-petrochemical complex investment is a win for both India and Saudi Aramco.

However, it throws uncertainty on the prospects of other Indian refinery expansion projects in the planning.

Strategic Partner

Meanwhile, Saudi Aramco may also seek to include a strategic partner to co-invest in the Ratnagiri Refinery and Petrochemicals Ltd, the mega complex.

The strategic partnership brings together crude supply, resources, technologies, experience, and expertise of these multiple oil companies with an established commercial presence around the world.

A pre-feasibility study for the refinery has been completed and the parties are now finalizing the project’s overall configuration.

Following the signing of the MOU, the parties will extend their collaboration to discuss the formation of a joint venture that would provide for joint ownership, control, and management of the project.

The refinery will be capable of processing 1.2 million barrels of crude oil per day. It will produce a range of refined petroleum products, including gasoline and diesel, meeting BS-VI fuel efficiency norms.

The refinery will also provide feedstock for the integrated petrochemical complex, which will be capable of producing approximately 18 million tons per annum of petrochemical production.

In addition to the refinery, cracker and downstream petrochemical facilities, the project will include associated facilities such as a logistics, crude oil and product storage terminals, raw water supply, as well as centralized and shared utilities.

“Investing in India is a key part of our company’s global downstream strategy, and another milestone in our growing relationship with India,” said Saudi Aramco President and CEO Amin H. Nasser, who also noted the opening in 2017 of Aramco Asia’s New Delhi office with a mandate to expand Saudi Aramco’s international portfolio in this key economic growth region.

“The signing marks a significant development in India’s oil and gas sector, enabling a strategic joint venture and investment partnership that will serve India’s fast-growing demand for transportation fuels and chemical products.

“Participating in this mega project will allow Saudi Aramco to go beyond our crude oil supplier role to a fully integrated position that may help usher in other areas of collaboration, such as refining, marketing, and petrochemicals for India’s future energy demands,” said Nasser. fii-news.com

Tags: Bharat Petroleum Corp Ltd.Hindustan Petroleum Corp LtdIndian Oil Corp LtdSaudi Aramco
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Fiinews.com features through news articles on business opportunities in the Indian market for the benefits of foreigners. It is also a platform for international businesses to showcase through elaborate articles on their products & services to the Indian consumers and corporations exploiting industrialisation of the country.

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