Saudi Aramco signed a memorandum of understanding to build an integrated Ratnagiri refinery and petrochemicals complex with a consortium of India's public sector undertakings (PSUs) – Indian Oil Corp Ltd, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd. This 1.2 million b/d refinery, estimated to cost US$44 billion, is slated to be the largest refinery in Asia. This development is the fruit of many government-level discussions, which will provide a shot in the arm for Prime Minister Narendra Modi in time for India’s 2019 elections and for Saudi Aramco ahead of its initial public offering.
For India, this is a strategic partnership and a significant milestone. The country's oil demand is rising by 120kb/d annually over the next five years, fast outpacing the average 45kb/d per annum PSUs capacity expansion within the same period. Because of the under-investment, PSUs will see their combined gasoline and middle distillate deficits rising to 630 kb/d by 2023. If India is to be self-sufficient, the need for new capacity to meet the growing demand in the longer term is clear. Assuming no further increase in private refiners' (such as Reliance and Essar) supply to the domestic market, we estimate that Indian PSUs would need to add between 150 kb/d to 200 kb/d of new refining capacity every year to maintain self-sufficiency in transport fuels between 2025 and 2035 even with this new refinery (see chart below). Furthermore, adding a prominent crude producer as a partner provides long-term crude supply security and help with financing such a large-scale project.
The grassroots refinery's integration with a petrochemical complex producing about 18 million tons per annum (MMTPA) chemical products serves to meet the country's rising chemicals demand. While the configuration of the petrochemical complex has not been finalised, prior indications from the Indian consortium have placed the ethylene capacity for the project at 3 MMTPA. This figure is double that of the current largest domestic cracker owned by Reliance at Jamnagar. Structurally, despite investments in the ethylene chain, India will remain a net importer of ethylene derivatives, especially polyethylene. It will likewise remain net short of polypropylene. Thus, the planned petrochemical complex should supplement India’s rapidly growing polyolefins demand.
For Saudi Aramco, this could be its largest refining investment in Asia as well as its third consecutive one, following its deals with Pertamina on the Cilacap refinery expansion in 2016 and Petronas on the RAPID development in 2017. The move brings the company one step further in its corporate strategy of raising its global refining capacity towards 10 million b/d to secure its crude disposition and diversify its portfolio by expanding its downstream assets. Amongst its global refining assets, Ratnagiri will be its second-largest refinery after Motiva refinery.
Overall, this joint refinery-petrochemical complex investment is a win for both India and Saudi Aramco. However, it throws uncertainty on the prospects of other Indian refinery expansion projects in the planning. We will be discussing this further in our upcoming insight.