Saudi Aramco and other Gulf oil giants look to India, Kazakhstan
Thursday, Jun 29, 2017
Saudi Arabia’s concerted expansion downstream in Asia was again evident in early June in initiatives by the state’s two corporate titans.

Saudi Aramco was said to be seeking to enter exclusive talks on investing in the largest refining project under way in India – revealed in a coincident industry report to have been the world’s fastest-growing crude consumer last year. Meanwhile, petrochemicals-focused Saudi Basic Industries Corp. (SABIC) has committed to studying projects in Kazakhstan as part of a wider co-operation agreement between Riyadh and Astana.

Meanwhile, Abu Dhabi government-owned Mubadala Investment Co. (MIC) appears set to build on a history of involvement in the key Caspian state forged by the two legacy companies from which the new firm was born last month. It likewise agreed to study petrochemicals investments in the country’s Atyrau downstream hub.

India’s Oil Minister Dharmendra Pradhan revealed on June 14 that Aramco was requesting exclusivity in negotiations on taking a stake in the estimated US$40 billion refinery and petrochemicals project planned in the western Maharashtra state.

The Saudi firm’s involvement had been discussed for some time but the impetus was increased by the signature on the same day of the joint venture (JV) agreement between the three state firms behind the landmark project – which would create the world’s largest greenfield refinery with capacity of 1.2 million bpd.

India Oil Corp. (IOC) will initially hold a 50% stake, with Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL) owning 25% apiece. “Saudi Aramco is interested to be a partner with the mega-refinery from the early stages of conception to implementation,” Pradhan was quoted as saying in the local press.

The project is scheduled for completion by 2022 and is envisaged encompassing a naphtha cracker and aromatics and polymers units.

As Pradhan pointed noted during the JV signing ceremony – and as was confirmed by BP’s well-respected Annual Statistical Review of World Energy published the previous day – India is the world’s third largest crude consumer, while the potential for demand growth is evident in per-capita energy consumption of only around 25% of the global average.

According to the BP survey, oil consumption surged by 7.8% to 4.5 million bpd in 2016 – more than four times the world average.

Aramco has unsurprisingly named the Asian powerhouse as among the key target geographies in the company’s plan to increase worldwide refining capacity from 5.4 million bpd to 8-10 million bpd by the middle of next decade. The incentive to invest downstream has been intensified by recent conditions of world oversupply of crude and bearish forecasts of long-term future demand.

The state firm has also discussed involvement in the expansion of BPCL’s Bina refinery in the central Madhya Pradesh state from 120,000 bpd to 310,000 bpd and in a 1.9 million tpy petrochemicals complex planned in Gujarat in the north-west by state-owned ONGC.

SABIC’s proposed venture into Caspian production would be a newer development – and was reported in the Kazakh press as having been agreed during a visit to the Caspian state by Saudi Energy, Industry & Mineral Resources Minister Khalid al-Falih in early June.

This reportedly focused mainly on ensuring Astana’s continued commitment to the agreement by a group of major non-OPEC oil producers to reduce crude output in tandem with cuts by the Saudi-dominated cartel’s members.

The Kazakh government promised to trim output by 20,000 bpd from reference production of 1.7 million bpd but is reportedly seeking some recognition of the additional crude coming on stream from the newly commissioned giant Kashagan field, where output is due to roughly double to 370,000 bpd by the end of the year.

According to statements carried in the local press, a memorandum of understanding (MoU) was signed on the sidelines of the ministerial meeting between SABIC’s CEO Yousef al-Benyan and Zhenis Osserbay, the chairman of United Chemical Co. (UCC) – the state firm spearheading Astana’s drive to develop the local downstream industry.

The deal entails a feasibility study on the development polyethylene (PE), polypropylene and methanol projects at the Atyrau petrochemicals zone on the central Caspian coast.

UCC has been planning for several years to develop a multi-billion dollar polymer complex at the site to process associated gas currently flared from the onshore Tengiz oilfield, further down the west coast.

While the location is novel for SABIC, the company has made landmark moves over the past year towards realisation of longstanding plans for overseas expansion, signing provisional agreements to develop a coal-to-chemicals (CTC) plant in northwestern China and a facility in Texas fed by US shale gas.

Abu Dhabi’s MIC – formally established in early May through the merger of the government’s MDC and International Petroleum Investment Co. (IPIC) – also signed a co-operation agreement with UCC later that month which was said to include studying the joint development of a PE complex in Kazakhstan.

Kazakh officials reported that the deal had been preceded by talks in Vienna – where MIC-owned chemicals giant Borealis and affiliate OMV are based. Both OMV and the former MDC have some upstream experience in the Caspian state – with the former operating four producing onshore fields in the west.

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