Page 4 - Downstream Monitor - MEA Week 32

DMEA CoMMentARy DMEA
Aramco to buy
20% of RIL’s
OTC business
RIL’s Mukesh Ambani has announced that Aramco will buy a major stake in the company’s oil-to-chemicals business as he looks to cut a heavy debt burden
MIddLe eAst
WhAt:
Aramco will acquire the 20% stake for around $15bn, which appears to be a very solid investment.
Why:
The Saudi rm has been making major progress on its plans to ramp
up its global re ning capacity in order to secure a long-term market for its crude.
WhAt next:
both parties would appear to bene t from the move and if it closes, it will take Aramco another signi cant step towards its downstream goal.
SAudI Aramco is set to acquire a 20% stake in Indian company Reliance Industries Ltd’s (RIL) oil-to-chemicals division, which includes the world’s largest re nery.
News of the deal was announced by RIL chairman Mukesh Ambani during the compa- ny’s AGM in Mumbai. With RIL’s OTC division valued at $75bn, Aramco is expected to pay $15bn to acquire the 20% interest in the rm’s re ning, petrochemicals and fuels marketing businesses.
Speaking to Bloomberg, Aramco’s senior vice president of finance Khalid al-dabbagh con rmed that a letter of intent (LoI) had been signed, but said that talks were in the “very, very early stages”.
The move comes as Aramco aims to raise global re ning capacity to 8-10mn barrels per day by 2030, with expansion focused on major Asian consumers of the kingdom’s crude. down- stream investment projects in China, India, Indonesia, Malaysia and Pakistan are at various stages of execution.
Most of Aramco’s current 4.9mn bpd capacity is produced through joint ventures, with around 2-3mn bpd of the total envisaged being con- verted to petrochemicals, to add to the 17 mil- lion tonnes per year of petrochemicals already produced.
Ambani’s announcement follows a meeting he had in december with Saudi Arabia’s Energy, Industry & Mineral Resources Minister and Ara- mco chairman Khalid al-Falih, a er which he con rmed that co-investments in re ning and petrochemicals were under discussion.
e Saudi rm’s CEO Amin Nasser also had talks with Ambani during a state visit to India by Crown Prince Mohammed bin Salman (MbS) in February.
In mid-April, the plans seemed to acquire firmer shape, as serious discussions were reported to be ongoing for Aramco to purchase 20-25% of Reliance’s re ning and petrochemicals business in a deal potentially worth $10-15bn.
Goldman Sachs was said to be advising.
RIL game changer
India’s huge and fast-growing market is inev- itably a key target market and is the planned destination of Aramco’s largest international investment to date. e Saudi rm is involved in a proposed $44 billion 1.2mn-bpd re nery and petrochemicals complex in the western Maha- rashtra state alongside Abu dhabi National Oil Co. (AdNOC) and three New delhi-owned oil companies.
However, local opposition to the original- ly-planned site at Ratnagiri appears set to delay the scheme and there has been talk of a move to Roha, in Raigad district, independently of which Aramco executives have publicly stated plans for additional projects in the country and in particu- lar co-investments with RIL.
Indian oil consumption is projected to roughly double over the next two decades, from 5mn barrels of oil equivalent per day (boepd) in 2020 to 9.9mn boepd by 2040, according to OPEC’s latest World Oil Outlook.
With India looking to secure supply and Saudi keen to shore up future market share, the Aramco/RIL tie-up makes sense from both sides. is was underlined by Ambani who said that as part of the deal, RIL will agree to a long- term purchase of 500,000 bpd of Aramco crude.
“Saudi Aramco and Reliance have agreed to form a long term partnership in our oils to chemicals division [...] is signi es the perfect synergy between the world’s largest oil producer and world’s biggest integrated re nery and pet- rochemicals complex,” he said.
e jewel in the RIL crown is the 1.24mn bpd Jamnagar re ning complex, and the acquisition of a 20% stake in the business would add a the- oretical net re ning capacity of 240,000 bpd to Aramco’s books.
Makes sense for Aramco
Ambani noted that the deal is expected to be by
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w w w . N E W S B A S E . c o m Week 32 15•August•2019