Saudi Aramco, the world's largest oil producer, signed an agreement to pick up 50 percent stake in a planned $44-billion refinery-cum-petrochemical project in Maharashtra, India - a move that will give it an assured customer for additional 30 million tons of its crude oil. At a later date, Aramco plans to dilute some of its 50 percent equity stake in the 60 million tons-a-year refinery project in favor of another strategic investor. The Saudi national oil company will supply half of the crude oil required for processing at the refinery. State-owned refiners Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) will own the remaining 50 percent stake. The refinery-cum-petrochemical complex is expected to be commissioned by 2022.
This investment will not be a full stop yet in India for Saudi Aramco as it is very much interested in entering the fuel retail market and scouting for other opportunities. The Saudi move reinforces the India growth story and the positive impact of the government’s oil sector reforms on global investors. While investment details are not yet clear, the deal, once completed, will compete with Russian major Rosneft’s $10 billion acquisition of Essar Group’s refinery and BP’s $7 billion deal for stake in Reliance Industries’ upstream assets for the tag of the largest foreign investment in India’s oil sector.
Saudi Arabia was known as the OPEC swing maker but is jostling with the US shale industry and non-OPEC players such as Russia for market share. It remained India’s biggest source of crude till 2016-17, before losing that position to Iraq.
India has a refining capacity of 232.066 million tons, which exceeded the demand of 194.2 million tons in 2016-17 fiscal. According to the International Energy Agency (IEA), this demand is expected to reach 458 million tons by 2040. IOC has 11 refineries with a total capacity of 81.2 MT; BPCL has four refineries with a total capacity of 33.4 MT; and HPCL has three refineries with a total capacity of 24.8 MT.
Keywords: Saudi Aramco, Maharashtra, IOC, HPCL, BPCL, Refinery, India, ARC Advisory Group.