Saudi Aramco signs agreement to develop $44bn refining complex in India

Saudi Aramco, the world’s biggest oil producer, has signed an agreement to develop with a consortium of Indian refiners a $44 billion integrated refining and petrochemical complex as it looks to secure its market share in India.

The planned integrated complex at Ratnagiri in Maharashtra state on the west coast will have refining and petrochemical capacities of 1.2 million barrels of crude and around 18m tonnes per year of petrochemical products respectively, Aramco said in a statement on Wednesday.

“Investing in India is a key part of our company’s global downstream strategy and another milestone in our growing relationship with India,” said Aramco president and chief executive Amin Nasser.

“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.”

India is the world’s third-biggest consumer of crude after the US and China, accounting for four per cent of world consumption in 2015, according to the US Energy Information Administration.

The country, which imports much of its oil from the Middle East – mainly Iraq and Saudi Arabia – is expected to see consumption grow 4.5 per cent every year for the next 25 years, Prime Minister Narendra Modi told a ministerial audience in New Delhi on Wednesday.

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Saudi Aramco’s agreement with refiners Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation comes amid a push to invest in integrated refining and petrochemical projects as a way to park its crude in strategic markets in Asia.

Mr Nasser said Aramco may also seek another partner to co-invest in the complex, which has completed a pre-feasibility study. The partners will look now to “extend collaboration to discuss the formation of a joint venture” that would provide for joint ownership, control and management of the scheme, Aramco said.

Saudi Arabia, the world’s biggest oil exporter, is expanding overseas because it is planning to nearly double its refining capacity from the current 5.4m barrels of oil per day by expanding in the kingdom and abroad, where it has stakes in refineries in China, the United States, Japan and South Korea.

Aramco has much more to derive from this partnership than India, said Vandana Hari, founder and chief executive of energy advisory firm Vanda Insights in Singapore.

“A stake in the refinery would enable it to participate in a sizeable and one of the world’s fastest-growing fuel markets.

“This fits in well with the Saudi giant’s efforts to diversify its portfolio and capture downstream margins as it prepares to go public,” she said.

For Indian refiners, the deal would provide them with a much-needed equity injection and the likelihood of discounted crude from Saudi Arabia, which has been on New Delhi’s agenda for a long time.

“They are in a good position with regard to market access for the products and as far as crude supply is concerned, it’s a buyer’s market for the foreseeable future,” said Ms Hari.

The agreement comes days after Saudi Aramco signed an agreement to develop a $5bn petrochemical complex with France’s Total in the industrial city of Jubail. The Saudi company also plans to park its crude in multi-billion dollar refining projects in the growing markets of Malaysia and Indonesia through similar schemes.

Once completed, Aramco’s India venture will be one of the largest refining and petrochemical complexes in the world, with the capacity to produce a range of crude products, including gasoline and diesel that meet fuel efficiency norms.

Aramco opened an office in the Indian capital New Delhi last year, as it eyes growing market share in the country.

Apart from refining and petrochemical facilities, the project will also have provisions for logistics, crude oil and product storage terminals, raw water supply and centralised and shared utilities.