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Why Aramco Wants In On India’s Largest Refining Company

Saudi Arabia’s oil giant Aramco is in “serious discussions” to buy up to 25 percent of the refining and petrochemicals businesses of India’s largest company, Reliance Industries, The Times of India reported on Wednesday, citing people with knowledge of the developments.

Aramco first showed interest in Reliance’s downstream business four months ago, but discussions have sped up since Saudi Crown Prince Mohammed bin Salman visited India in February, according to The Times of India.  

The two sides could reach an agreement on the value of a possible deal around June, the Indian outlet’s sources said. A stake of 25 percent could fetch around US$10 billion-US$15 billion for Reliance, which would value the Indian company’s total refining and petrochemicals business at some US$55 billion-US$60 billion.

In recent years, Saudi Arabia has been pursuing downstream deals in Asia—the most prized market for oil exporting nations, aiming to lock in future demand for Saudi crude oil. India, for its part, is a fast-growing demand center and the world’s third-largest oil consumer after the U.S. and China.

During the visit of Crown Prince Mohammed bin Salman to India two months ago, Saudi Arabia announced plans to invest US$100 billion in India’s infrastructure and energy industry as it seeks to strengthen its position in the country.

Related: The U.S. Is Losing Influence In The World’s Biggest Oil Region

India is an investment priority for Saudi Aramco, the chief executive of the Saudi oil giant Amin Nasser said in New Delhi in February, noting that Aramco is in talks with Reliance Industries for potential investments and is looking at other opportunities as well.

In June last year, Saudi Aramco and the Abu Dhabi National Oil Company (ADNOC) signed a framework agreement and a memorandum of understanding with a consortium of Indian national oil companies to join a project for a mega refinery and petrochemical complex in India worth US$44 billion. However, the huge project has faced setbacks because farmers have been unwilling to give up their land for the site of the plant, and earlier this week the Maharashtra state announced that the project would be relocated to another site.

Earlier this week, Aramco said that its subsidiary Aramco Overseas Company would buy 17 percent in South Korea’s Hyundai Oilbank for around US$1.25 billion, an investment that “will support Saudi Aramco’s crude oil placement strategy by providing a dedicated outlet for Arabian crude oil to South Korea.”

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By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on April 17 2019 said:
    Having been confirmed as the world’s most profitable oil company, Saudi Aramco aims also to become the world’s largest fully integrated oil company.

    With its planned acquisition of 70% stake in Saudi petrochemical Industries Corporation (SABIC), its interest in buying up to 25% of the refining and petrochemicals businesses of India’s largest company, Reliance Industries and also its intention to buy 17% in South Korea’s Hyundai Oilbank, Saudi Aramco could well emerge as the world’s largest fully integrated oil company.

    In recent years, Saudi Arabia has been pursuing downstream deals in Asia—the most prized market for oil exporting nations. India, for its part, is a fast-growing demand country and the world’s third-largest oil consumer after the U.S. and China.

    Saudi Aramco’s investment strategy is part and parcel of the diversification of the Saudi economy as envisioned by Saudi Arabia Vision 2030. It also enables Saudi Aramco to lock in future demand for Saudi crude oil.

    Moreover, it makes a lot of business sense. The petrochemical industry is one of the world’s fastest growing industries and the second biggest consumer of crude oil after transport. By exporting part of its crude oil as petrochemical products, Saudi Aramco will not only be helping in the diversification of the Saudi economy but it will also be enhancing Saudi Arabia’s revenues from oil.

    Along with the acquisition of SABIC, these overseas investments will enable Saudi Aramco to raise its refining capacity from the current 4.9 mbd to 8-10 mbd by 2030 thus becoming one of the world’s largest exporters of refined products.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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