The world's biggest oil exporter Saudi Aramco has said it is focusing its downstream investments in high-growth nations such as India as it negotiates a deal to buy up to 20 per cent stake in Reliance Industries' USD 75 billion oil-to-chemical business.
In its latest annual report, Aramco said it is looking at investment opportunities in high-growth markets as well as nations that rely on importing crude oil.
India is the world's fastest-growing energy market with fuel consumption rising at 4-5 per cent annually. It also relies on imports to meet its 83 per cent of oil needs. Saudi Arabia is its second-biggest oil supplier, exporting close to a fifth of India's oil sourced from abroad.
"Saudi Aramco is focusing its downstream investments in areas of high growth, including China, India and Southeast Asia, material demand centers such as the United States, and countries that rely on importing crude oil, such as Japan and South Korea," the firm said in its annual report.
Besides, the integration of the firm's upstream and downstream segments provides a unique opportunity for Saudi Aramco to secure crude oil demand by selling to refineries designed specificallyto economically process Arabian crude oil.
"Furthermore, Saudi Aramco intends to enhance its domestic and global marketing businesses to support the position of its upstream business in key, high-growth geographies, including China, India and Southeast Asia, which are integral to Saudi Aramco's existing business and future expansion strategy," it said adding the firm intends to maintain its presence in key large countries that rely on importing crude oil.
Billionaire Mukesh Ambani had in August last year announced initial agreements to sell a 20 per cent stake in the oil-to-chemical business to the Saudi national oil company. Also, a 49 per cent interest in fuel retailing business was sold to the UK's BP plc for Rs 7,000 crore.
Morgan Stanley in a March 19 research note stated thatAramco had in a conference call stated that it is still conducting due diligence on a potential investment in RIL's oil to chemicals operation.
"Once evaluation is complete, it will move to the next stage of the approval process," it said.
Refining and petrochemicals are a cash cow for Reliance. As part of the August deal, Saudi Aramco will supply 500,000 barrels per day of crude (25 million tonnes per annum) on a long-term basis to Reliance's Jamnagar refinery complex (40 per cent of the refining capacity).
Market analyst firm Bernstein in a recent report had stated that Reliance's partnership with Aramco signals expansion rather than retreat as growth opportunities are expected to boost the petrochemical and refining vertical.
Stating that India has significant secular expansion (that is, unaffected by short-term trends) ahead in refined products and petrochemicals, it had said with the lowest demand per capita of 1.3 barrels per person, demand for refined products will grow by 5 million barrels per day over the next two decades, more than any other major market.
Ethylene demand could grow ten-fold from 5kg per person per annum to 50-60kg pp/pa as consumer demand rises. India is estimated to be the fastest-growing refined fuels market over the next 20 years (faster than China) and will also one of the fastest-growing markets for petrochemicals given the per capita demand which will grow with the GDP.
The single largest asset within Reliance's refining and petrochemical business is the Jamnagar complex, which is one of the world's largest refining hubs.
The Jamnagar complex was built in 2000 with a capacity of 0.67 million barrels per day. After upgrades in 2008, Jamnagar's crude processing capacity has more than doubled to 1.24 million bpd. Not only is Jamnagar the largest refinery hub in the world, but it is also one of the most complex refineries globally, allowing RIL to process discounted heavier crude oil into oil products.