Aramco to take stake in Reliance’s refining and petchems businesses

Saudi Aramco has signed a non-binding letter of intent (LOI) regarding the proposed acquisition of a 20% stake in Reliance Industries’ (RIL) Oil to Chemicals (O2C) division, which is responsible for the company’s refining, petrochemicals and fuels marketing businesses. The deal has been valued at $75bn and is one of the largest foreign investments in India to date.

Saudi Aramco and RIL have a long-standing crude oil supply relationship of over 25 years. Saudi Aramco is the world’s largest and lowest cost-per-barrel producer of crude oil, is geographically close to India, and offers a wide range of crude supply options. To date it has supplied approximately 2bn barrels of crude oil for processing at RIL’s refinery at Jamnagar.

The Jamnagar refinery is claimed to be the largest and most complex refinery in the world, with deep integration of refining and petrochemical activities across multiple manufacturing facilities. The proposed investment would result in Saudi Aramco supplying 500,000 b/d of Arabian crude oil to the Jamnagar refinery on a long-term basis.

The terms of the deal are yet to be finalised. However, according to market analyst Wood Mackenzie, company officials have said Reliance will get roughly $15bn, including some debt adjustments, for the 20% stake when the sale closes later this year.  

Alan Gelder, Vice President Refining and Chemicals, Wood Mackenzie, notes: ‘Our analysis indicates that the total earnings from the combined refinery sites in India are the highest in Asia outside the mega-refiners of Sinopec and PetroChina. Crude supplies of 500,000 b/d represent about 40% of Reliance’s crude intake, significantly higher than the stake taken, although Saudi Aramco historically supplied 20% of Reliance’s crude oil requirements.’

He adds: ‘The deal is further evidence that Saudi Aramco is executing on its long-term strategy to increase its refining and petrochemical capacity. This strategy is being achieved through a combination of project and acquisitions, with this acquisition following on from last year’s acquisition of SABIC and SASREF, and the memorandum of understanding Aramco signed this year to acquire a 9% stake in Zhejiang Petrochemical’s 800,000 b/d integrated refinery and petrochemical complex in Zhoushan, China. Saudi Aramco continues to show keen interest in accessing the Indian market, which has the strongest long-term growth prospects.’

Gelder concludes: ‘Aramco is also demonstrating discipline in targeting strongly competitive assets that are well placed, through petrochemical integration, to be sustainable through the energy transition.’