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World’s biggest oil producer, Saudi Aramco, eyes ‘mega-investment’ plan in India

By Devangi Narang

The world’s biggest oil producer and Saudi Arabia’s state-owned oil giant, Saudi Aramco, has plans to invest in the downstream oil and gas sector of India through a joint venture. It plans to create a fully integrated business in India and is interested in partnering with Indian companies.

It has even set up a local arm in Gurgaon, Aramco Asia India, as it evaluates picking up stake in a Rs 40,000-crore mega refinery on the west coast of the country. The office was jointly inaugurated by Saudi Aramco CEO Amin H Al-Nasser and Petroleum Minister Dharmendra Pradhan in a move to strengthen the bilateral partnership in the hydrocarbons sector.

“India has all the signs of a prosperous economy that is on the move. This is a market of investment priority and not a choice anymore. Thus, we are looking at mega investment in India, as it is an important market. India is going from 4.6 million barrels per day of oil consumption to 10 million barrels per day by 2040,” Nasser said at the Indian Energy Forum organised by IHS Markit in Delhi. 

The Aramco strategy

Saudi Arabia has been edged out as the top oil supplier to India amid an intensifying race among producers to retain their most-prized markets. Saudi Arabia is closely competing with Iraq to be India’s top oil supplier, with Iraq displacing it for the fifth month in a row in August, data compiled by Reuters showed. Major oil producers that have lost market share due to the rise in U.S. shale oil production are tapping rising fuel demand in Asia.

Earlier this year Saudi Arabia pledged billions of dollars of investment in projects in Indonesia and Malaysia to ensure long-term oil supply deals. The Kingdom wants to mirror that strategy in India, after missing out to Russia’s Rosneft in an opportunity to buy a majority stake in the private refiner, Essar. Saudi Arabia’s Energy Minister Khalid al-Falih has said that India was a prime target as Aramco looked for collaboration opportunities across Asia.

Saudi Aramco held talks with India’s state-owned oil companies led by Indian Oil Corp. to discuss participation in the 60 million ton a year refinery being set up in the state of Maharashtra on India’s west coast 

Aramco plans to evaluate all segments of the petroleum business, including refining, pipeline, and marketing, and back it up with the latest technology, including information technology know-how. Aramco India plans to expand its operation by introducing hydrocarbon sector services functions, including engineering services, information technology operations and security and a research and development centre. It intends to partner with Indian companies and set up integrated business ventures in the hydrocarbon value chain in India.

Fuel for growth and government policies

Besides Aramco, Russian state-owned Rosneft (which recently acquired Essar Oil for $13 billion) and American major Exxon Mobil have also committed further investment in India’s oil and gas sector, Amitabh Kant, CEO, NITI Aayog, told reporters, after a three-hour-long meeting held on Tuesday between Prime Minister Narendra Modi and oil industry leaders.

Petroleum Minister Dharmendra Pradhan, who was at the meeting, said India offered investment opportunities worth $300 billion in the sector over the next 10 years.

The government showcased policy decisions in the sector. While the industry demanded that the entire petroleum sector be brought under the goods and services tax (GST) regime, Pradhan said some relief for petroleum exploration and production had been given. The GST rate on offshore exploration, beyond 12 nautical miles, has been cut to 12 percent from 18 percent. 

The PM indicated there would soon be a comprehensive energy policy. The NITI Aayog had, a few months ago, come out with a draft energy policy. Industry leaders said there was also a need to stabilise contract frameworks and arrangements, improvement in gas supply and, setting up of a gas hub.  Regulatory issues also came for discussion during the meeting. Officials said the industry wanted separation of tariff regulatory functions of Petroleum and Natural Gas Regulatory Board from its development role of giving rights for pipelines.

Photo credit: Grangernite via VisualHunt / CC BY

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