INDIA’S GROWING ENERGY DEMAND UNDERPINS GULF OIL AMBITIONS
▶ The country needs billions of dollars in foreign investment to meet future capacity shortage
Arabian Gulf national oil companies will increasingly look to acquire refining stakes in India, one of the few hot spots for high demand growth in crude, analysts said.
On Monday, Saudi Aramco, the world’s largest oil exporting company took a 20 per cent stake in the oil-to-chemicals business of Reliance, India’s largest privately held refiner.
The Saudi state producer is expected to pay as much as $15 billion (Dh55bn) in what is India’s largest foreign investment yet. It will also include the world’s largest refinery, the 1.24 million barrel per day capacity Jamnagar facility in western Gujarat state.
The investment comes amid increasing merger and acquisition interest in India’s refining sector as both majors and state-backed players such as Aramco look to park their crude in refinery assets in one of the few places with growing demand for the commodity.
“The key issue is India’s demand growth is growing faster than other economies,” said Sushant Gupta, research director for Asia-Pacific refining and oils market at Wood Mackenzie. “There’s a huge pent-up demand and shortage of refining capacity in the future.”
The consultancy expects Indian refinery capacity to face 3.5 million to 4 million bpd of shortage in the future, with India’s state-backed refiners tasked to bridge the gap by courting foreign investment in the billions of dollars.
Already, there are many takers. A week before the Aramco-Reliance announcement, BP signed a partnership with the Indian company to access the country’s fast-growing fuel retail market.
Fuel retail has emerged as a sweet spot for Gulf oil companies interested in securing additional ways to sell their crude. State-owned Abu Dhabi National Oil Company is looking at selling lubricants into the Indian market, while its UAE competitor Emirates National Oil Company has also looked at opportunities in South Asia’s largest economy. The Dubai company is in discussions to develop low-sulphur cylinder oil blends for sale in India, which is increasingly looking to buy products compliant with International Maritime Organisation regulations.
Other big-ticket projects are also under development. Aramco and Adnoc are looking at a joint venture to invest in a planned $44bn integrated refining and petrochemicals facility in the western Indian state of Maharashtra.
The scheme, which has yet to move ahead because of land acquisition regulations, will be one of the biggest refining capacity additions for India.
“There are huge number of projects in the pipeline. Today, India’s refining capacity is 5 million bpd, and if you count all the projects in the pipeline, it could potentially double,” Mr Gupta said.
He expects about 800,000 bpd of new refining capacity to come online over the next five years. But he does not expect the Aramco-Adnoc scheme in Ratnagiri, Maharashtra, which has a planned capacity development of 1.2 million bpd, to be realised by 2025.
While India’s rising middle class will continue to fuel demand for cars and therefore demand for petrol and diesel, the country, which is nearly self-sufficient in meeting its requirements, will be unable to do so in the longer term.
India is expected to meet some of its future shortage by diverting product currently being exported to meet its needs, until the planned refinery in Maharashtra comes online.
“The will from the government and the public sector is much stronger now to make projects move faster than the previous 10 to 15 years,” Mr Gupta said.
Fuel retail has emerged as a sweet spot for Gulf oil companies interested in securing additional ways to sell their crude