Aramco continues diversification with Reliance deal
Saudi Aramco’s panned multi-billion dollar investment in India’s Reliance Industries is another major diversification move for the world’s most profitable company.
The world’s top oil producer has signed a letter of intent to take a 20 percent stake in Reliance’s oil-to-chemicals business, the Indian conglomerate revealed this week.
It represents one of the largest ever foreign investments in India.
It also represents perfect synergy between the world’s largest oil producer and the world’s largest integrated refinery and petrochemicals complex.
The complex enjoys a strategic location on India’s western coast, putting it in ideal proximity to the Arabian Gulf.
For nearly two decades, Reliance has been one of the major customers of Saudi Aramco, importing crude oil under long-term agreements that have stood the test of time.
That trade has grown to account for some half a million barrels daily passing from Saudi Arabia to India.
Now Aramco will be able to tap into the profits from producing the final petroleum and petrochemical refined products.
This guaranteed market share in such a major Indian refinery with a capacity to process 1.24 million barrels of crude oil daily (bpd) is a success story in itself amid such fierce competition from global crude oil producers to grab market share in the world’s second-most populous country and third-largest oil consumer.
Hence, Saudi Aramco will remain India’s top crude supplier and it will be hard for other producers to compete.
Reliance Industries’ refinery and petrochemical complex is a fully integrated model that supplies its products and petrochemicals to the major key markets in Asia, Europe and the US.
This deal will also help to strengthen the already strong ties between Saudi Arabia and India, both G20 members.
Saudi Arabia is already the fourth largest trading partner to India, providing almost 20 percent of its crude oil imports. India is the third largest consumer of crude in the world after the US and China, using more than 4 million bpd of oil per year.
India has a rapidly growing oil demand that is expected to rise in the medium-term to nearly 6 million bpd, and climb to around 10 million bpd by 2040.
The rapid growth in its oil consumption is a major challenge for the Indian economy, as the country only has a total refining capacity of about 4.6 million bpd.
Currently, that is not enough to meet local demand. The country’s energy policies also restrict imports of petroleum products, placing greater strain on local refining.
A partnership with Saudi Arabia therefore, the world’s largest oil exporter, will be invaluable in safeguarding future supply.
Saudi Aramco is not only buying a share of a Reliance refinery and petrochemical complex but more importantly the wider and growing market which is attached to that.
Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq