Left Menu
Development News Edition

Reliance's partnership with Saudi Aramco not a retreat from energy business: Report

Reliance's partnership with Saudi Aramco not a retreat from energy business: Report
Image Credit: ANI

Reliance Industries' partnership with Saudi Aramco for its USD 75 billion oil-to-chemicals business signals expansion rather than retreat as growth opportunities are expected to boost the petrochemical and refining vertical, market analyst firm Bernstein said. Billionaire Mukesh Ambani had in August last year announced initial agreements to sell a 20 per cent stake in the oil-to-chemical business to the Saudi national oil company. Also, a 49 per cent interest in fuel retailing business was sold to UK's BP plc for Rs 7,000 crore.

"Reliance has pivoted away from energy to the new economy. But energy still accounts for 64 per cent of EBITDA. While RIL has divested stakes to BP and Aramco, we expect RIL to grow their petrochemical and refining business given the secular growth opportunities," it said in a report. Stating that India has significant secular expansion (that is, unaffected by short-term trends) ahead in refined products and petrochemicals, it said with the lowest demand per capita of 1.3 barrels per person, demand for refined products will grow by 5 million barrels per day over the next two decades, more than any other major market.

Ethylene demand could grow ten-fold from 5kg per person per annum to 50-60kg pp/pa as consumer demand rises. "Reliance partnership with Aramco and BP signals expansion ahead rather than retreat," Bernstein said. "Aramco's investment is to secure market access and growth. While refining is a cash cow for the business, we believe that there are significant opportunities for petrochemical expansion ahead given demand growth and synergies with refining."

Fuels marketing will be significantly expanded given the partnership with BP and plans for 5,500 stations, it said. Ambani had in August last year announced that the deal with Aramco will close by March 2020 but it is now expected to close within the current calendar year.

Refining and petrochemicals are a cash cow for Reliance. "But to think of this as an ex-growth part of the business would be a mistake. In India, there is strong secular demand growth ahead. India is estimated to be the fastest growing refined fuels market over the next 20 years (faster than China) and will also one of the fastest growing markets for petrochemicals given the per capita demand which will grow with the GDP," it said.

As part of the August deal, Saudi Aramco will supply 500,000 barrels per day of crude on a long-term basis to RIL's Jamnagar refinery complex (40 per cent of the refining capacity). "While bears will argue that Reliance is stepping away from energy to digital, we see this deal as an opportunity to expand the downstream business in India with a solid partnership. For Aramco, the deal provides direct access to what is widely expected to be the fastest growing refined oil product market over the next 20 years," it said. "For Reliance, it provides cash to fund expansion of their digital business and further expansion of downstream capacity with an experienced partner."

Bernstein also said in the short term it remains cautious on chemical margins, but more positive on refining. On RIL's oil and gas exploration and production business, it said output will start to recover from this year with new developments.

"Reliance and partners are developing 3 trillion cubic feet of reserves in the KG-D6 block which can add gross production of 1 billion cubic feet per day and raise segment EBITDA back to Rs 120 billion," it said. The turnaround is based on three new projects which Reliance and partner BP has launched in the KG basin. Notably the R-Series, Satellites and MU development which together contain 3 trillion cubic feet (TCF) of reserves which will underpin a recovery in production.

But the refining segment remains one of the most important contributors to earnings for Reliance. The single largest asset within Reliance's refining and petrochemical business is the Jamnagar complex, which is one of the world's largest refining hubs.

The Jamnagar complex was built in 2000 with a capacity of 0.67 million barrels per day. After upgrades in 2008, Jamnagar's crude processing capacity has more than doubled to 1.24 million bpd. Not only is Jamnagar the largest refinery hub in the world, it is also one of the most complex refineries globally, allowing RIL to process discounted heavier crude oil into oil products. "In comparison to global oil majors, Reliance has relatively less refining capacity at 1.24 million bpd versus peers at 2.62 million bpd. However, Reliance has one of the best positions to grow its capacity over time given India's structural growth in oil demand over the next 20 years," it said. "Moreover, Reliance has one of the most profitable refining business relative to peers owing to the higher complexity of Jamnagar. Whether Reliance will choose to expand its existing footprint is not clear, but the relationship with Aramco (assuming the deal goes through) means that there could be options for further expansion."

In fuels marketing, Reliance has also formed a new JV with BP last year to create a world-class fuel retailing network in India. Over the next 20 years, India is likely to be the fastest growing fuels market. The new JV company will assume ownership of RIL's existing fuel retail network and aviation fuel business. Under the new partnership, RIL will hold 51 percent of the new JV company and BP will hold the remaining 49 percent. The JV has plans to rapidly grow the fuel retail distribution network in India over the next 5 years. RIL currently has 1,400 sites across India including contribution of USD 1.9 billion per annum in revenue from owned petro retail outlets.

The JV plans to expand this to 5,500 sites over the next 5 years, which represents 800 additional sites per year. "For BP, the JV gives them access to the fastest growing refined fuels market. It also allows BP to tap into convenience non-fuel retail in India which is growing rapidly. For Reliance, the transaction provides funding and enables them to tap into BP's extensive fuels marketing experience," it added.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

Download The Devdiscourse News App for Latest News.



Top 10 Fake News, Myths and Realities on 2019 Novel Coronavirus COVID 19

With nearly 1500 deaths by January 14 and around 65,000 infections in China, the Novel Coronavirus 2019 has become one of the worst health epidemics of the 21st Century. However, 8,573 people have been cured but the rumor mongers are a...

Handling fake news Infodemic in time of Coronavirus epidemic

Social media has provided a platform where everybody can disseminate his her views without any supervision. Its excellent if the message is genuine but misinformation is equally disastrous. Health is such a topic where every Tom and Harry c...

Sentiment Analysis on Budget 2020: Long shot for solution to economic worries?

Industries and individuals alike had high expectations from the government to take tangible steps but the budget 2020 seems to have failed expectations....

How can technology help the future of mobility?

More than a billion people or one-third of the global rural population lacked access to all-season roads and transport services in 2016, subsequently hindering the socio-economic development....


Latest News

EU targets textiles, batteries and packaging in plan to halve waste by 2030

Recycling textiles, batteries and packaging will be the priority in a new plan to halve waste in the European Union by 2030, the head of the EUs Green Deal said on Tuesday.Frans Timmermans, who is leading the EUs drive to become the first c...

Gold worth Rs 85 lakh seized, Sri Lankan national held in Chennai airport

Customs officials at the airport here have seized gold worth Rs 85.37 lakh from passengers in the last two days and arrested a Sri Lankan national in this connection. Acting on a specific information, the air intelligence wing sleuths recov...

Don't kill our national bird: Dutch object to new Lisbon airport

Thousands of people in the Netherlands have signed a petition objecting to the construction of an airport in Portugal that could threaten the black-tailed godwit, the Dutch national bird.The new airport will be located on the south bank of ...

WRAPUP 8-China sees fall in coronavirus deaths, WHO urges caution, Apple takes hit

China reported its fewest new coronavirus infections since January on Tuesday and its lowest daily death toll for a week, but the World Health Organization said data suggesting the epidemic had slowed should still be viewed with caution. Th...

Give Feedback