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India

RIL deal to make Saudi Arabia India's top crude supplier

The world's largest oil producer will acquire a 20% stake in RIL's refining and petrochemicals business at an enterprise value of $75 billion, the latter announced at its annual general meeting (AGM) on Monday.

Saudi Arabian Oil Co (Aramco)'s 20% stake purchase in Reliance Industries' oil-to-chemical (O2C) business is expected to help the former regain the position of being the biggest supplier of oil to India.

As per industry observers, Saudi Arabia, which has been India's number one oil resource, has in the past couple of years lost the slot to Iraq. The world's largest oil producer will acquire a 20% stake in RIL's refining and petrochemicals business at an enterprise value of $75 billion, the latter announced at its annual general meeting (AGM) on Monday. The acquisition would be accompanied with a deal to supply 500,000 barrels per day or 25 million tonne (mt) a year of crude oil.

As per the data available with Directorate General of Commercial Intelligence and Statistics (DGCIS), Saudi Arabia in 2018-19 fiscal exported 40.33 mt of crude oil to India, over 15% short of 46.61 mt sold by Iraq.

According to Alan Gelder, vice-president refining and chemicals at Wood Mackenzie, a research and consultancy firm, the crude supplies of 500,000 barrels per day represent about 40% of RIL's crude intake, significantly higher than the stake taken, although Saudi Aramco historically supplied 20% of RIL's crude oil requirements. Therefore, the additional oil supplies following the Reliance deal will catapult Saudi Arabia to top spot again.

India, like most of Asia has traditionally bought the bulk of its oil from the Middle East, but that's changing as the US ramps up shale exports. Further, Russia is looking for new customers while Saudi Arabia, which leads oil cartel Opec, is said to be making efforts to curb production to prop up prices. American sanctions on Iran and Venezuela are also cutting some supply off the market though providing an opening for new suppliers.

Dislodging Iraq

Saudi Arabia in 2018-19 fiscal exported 40.33 mt of crude oil to India, over 15% short of 46.61 mt sold by Iraq.
The crude supplies of 500,000 barrels per day represent about 40% of RIL's crude intake, significantly higher than the stake taken

The International Energy Agency last week trimmed global forecasts for oil-demand growth this year and next and warned it might cut estimates further due to the US-China trade war. Indian demand-growth will rise to 225,000 barrels a day in 2020, from 170,000 this year, it said.

The O2C business includes Reliance's refining and petrochemical divisions, and its 51 % stake in its fuel marketing business. The rest 49% stake in the fuel marketing business, which comprises 1,400 petrol pumps and aviation fuel facilities at 31 airports, has been sold to BP for Rs 7,000 crore.

Gelder, said the deal is an evidence that Aramco is executing on its long-term strategy to increase its refining and petrochemical capacity.

Aramco had earlier along with UAE's ADNOC signed up to take a 50% stake in a planned 60 million tonne a year refinery along the west coast in Maharashtra. Aramco and ADNOC are to supply half of the crude oil required for the proposed refinery that will come up not before 2025.

According to the analysts, Saudi Arabia is keen to get a foothold in the world's fastest-growing fuel market to get a captive customer for the crude oil it produces.

Aramco is also keen on retailing fuel in India. A refinery in India can also be a base for it to export fuel to deficit countries in Europe and the Americas.

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