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India And UAE Strengthen Energy Ties With New Strategic Oil Deal

  • Last week saw the already broadening and deepening ties between the UAE and India extend further.
  • Leading Indian conglomerate, Reliance Industries, outlined plans to establish a major oil and petrochemicals trading unit in the UAE
  • ADNOC is reportedly at the top of the list of foreign companies that would be considered to buy a substantial stake in the high-profile privatization of major Indian refiner, Bharat Petroleum

Last week saw the already broadening and deepening ties between the UAE and India extend further. With the announcement in August 2020 of the U.S.-brokered Israel-UAE ‘normalisation deal’ a new corridor of co-operation was opened up, running from the U.S. (and Israel), through the UAE (and Kuwait, Bahrain, and in part Saudi Arabia) through to India, as a regional counterbalance to China’s growing sphere of influence. As much of China’s current turbo-driven expansion into the Middle East is predicated in the first instance on the energy sector, this is also the starting point for the build-out of the U.S.-Israel-UAE-India alliance. This makes perfect sense as the oil industry involves the movement of huge amounts of money, ships, equipment, technology, and personnel in often disguised ways – confidential bank accounts, intelligence, and military personnel who can pass as high-level oil technicians or security people, ships that can disappear through the flick of an AIS switch and so on – that other industries cannot match for activities that countries want to conduct quietly.

According to various announcements, the leading Indian conglomerate, Reliance Industries, outlined plans to establish a major oil and petrochemicals trading unit in the UAE as part of an overall US$2 billion investment to be made in the emirate. This huge funding – Reliance’s first such deal in the Gulf region - is to flow into the UAE’s TA’ZIZ chemical joint venture between the Abu Dhabi National Oil Company (ADNOC) and sovereign wealth fund ADQ. ADNOC stated at the end of June that the final investment decisions for the projects related to the EPC contracts for TA’ZIZ will be made in the coming months, possibly before the beginning of 2022, OilPrice.com understands from local legal sources, and that the plants will have the capacity to produce 940,000 million metric tonnes per year (mtpy) of chlor-alkali, 1.1 million mtpy of ethylene dichloride, and 360,000 mtpy of polyvinyl chloride, among other planned products.  In ADNOC, this new U.S.-aligned group has an ideal corporate proxy to advance such broader policy and power projection all the way up to China’s border through increased cooperation with India. At the moment, ADNOC – already the UAE’s biggest energy producer – is pumping around 4 million barrels per day (bpd) of crude oil but is aiming to increase this output by at least another 1 million bpd by 2030 at the latest, and to increase its gas output as well. With this moving forward, and given the U.S. endgame in securing India as a direct counterbalance to China in Asia, the last piece of the puzzle appears to be moving into place right now. ADNOC’s chief executive officer, Sultan al-Jaber, has repeatedly stated that he looks forward to exploring partnerships with even more Indian companies across the energy giant’s hydrocarbon value chain, with TA’ZIZ being a prime example of this.  Related: Is America Doomed To Replicate Europe’s Energy Crisis?

He added that he wants this to include expanding the commercial scale and scope of the strategic reserves partnership, in line with ADNOC currently being the only overseas company so far allowed to hold and store India’s vitally important strategic petroleum reserves (SPR). In keeping with the developing scope of this relationship, India’s government approved a proposal that will allow ADNOC to export oil from the SPR if there is no domestic demand for it, in the first instance from the Mangalore strategic storage facility (the other major SPR pool being at Padur). This decision marked a major shift in the policy of India in the handling of these vital energy reserves, with the country having previously completely banned all oil exports from the SPR storage facilities.

A further sign of this relationship between the US-sponsored UAE and India moving up a gear is the likelihood of ADNOC being top of the list of foreign companies that would be considered to buy a substantial stake in the high-profile privatization of major Indian refiner, Bharat Petroleum. Russian state-corporate proxy, Rosneft, had expressed an interest in buying the Indian government’s 53.29 percent in the company – following a visit to New Delhi by Rosneft’s chief executive officer, Igor Sechin – but these overtures have now been sidelined by India. Certainly, given the current low oil price environment and low demand for a range of refined products, it may be thought that buying a refining-centric operation would not appeal to many companies. However, as far as the UAE is concerned it would fit well not just into the broader geopolitical maneuvering that is going on but also – commercially – into the swathe of deals being planned with Indian companies in the UAE.

This was underlined by al-Jabber at the end of 2020 when he said: ‘Today, Indian companies represent some of Abu Dhabi’s key concession and exploration partners…[and] As we continue to work together, I see significant new opportunities for enhanced partnerships, particularly across our downstream portfolio.’ He added: ‘We have launched an ambitious plan to expand our chemicals, petrochemicals, derivatives, and industrial base in Abu Dhabi and I look forward to exploring partnerships with even more Indian companies across our hydrocarbon value chain.’ This longer-term view accords with the outlook given at around the same time by India’s minister of petroleum and natural gas, Dharmendra Pradhan, as he stated that India’s demand for refined products is expected to rise dramatically, requiring a 40 percent increase in its refining capacity to 350 million tonnes a year or 7 million bpd by 2030. Part of the policy to accommodate this increase is the plan to build a 1.2 million bpd refinery and petrochemical plant on India’s west coast through a joint venture made up of Indian state refiners and ADNOC, plus possibly Saudi Aramco.

By Simon Watkins for Oilprice.com

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