Reliance-Aramco deal progressing despite India-Saudi oil stand-off

Even as the stand-off between India and Saudi Arabia escalates with the kingdom increasing the crude oil price for Asia and India cutting imports from the Gulf nation, the state-run Saudi Aramco's stake purchase plan in Reliance O2C Ltd is unaffected, said sources in the know.

Aramco is serious about partnering Reliance and the discussions are progressing as expected, three sources confirmed.

Aramco, the world's largest oil producing company, is expected to register a strong performance in this year, thanks to the spike in crude prices. The Brent crude price is hovering around $65 per barrel, as compared to $38 in early November. Bank of America (BoA) earlier estimated that Aramco would generate close to $100 billion in cash flow in 2022.

Also, Aramco is generating surplus cash as it recently agreed to sell its 49 per cent stake in pipelines to a consortium led by US-based EIG Global Energy Partners for $12.4 billion. It is Aramco's largest deal since its record $29.4 billion IPO in late 2019.

In 2020, the energy giant posted a 44.4 per cent slump in net profit due to lower crude prices, as the coronavirus pandemic weighed heavily on global demand. Aramco achieved a net income of $49 billion in 2020, down from $88.2 billion in 2019.

India, the third-largest crude oil importer and consumer, recently advised public sector crude refining companies to scale up import from the US and Africa following Saudi Arabia's decision to raise official selling price (OSP) of oil shipments to Asia in May. The action by Saudi, the world's largest crude exporter, was largely conceived as a retaliation to India's plan to cut crude imports from the country.

Mukesh Ambani, Chairman and Managing Director of Reliance Industries, announced in 2019 that Aramco would pick up 20 per cent stake in the company's newly floated subsidiary Reliance O2C for $15 billion. Aramco sees Reliance O2C as a dedicated buyer of its crude. Besides, it sees opportunity in Reliance O2C's plan to increase production of petrochemicals by reducing fuel output.

The O2C business of Reliance includes the twin refineries in Gujarat's Jamnagar and the adjacent petrochemicals complex, besides the petroleum retail joint venture of RIL-BP Plc.

The deal also ensures a dedicated market for Aramco's crude in India. As part of the deal, Reliance O2C will sign to buy 5,00,000 barrels of crude oil every day (28 per cent of the company's Jamnagar refinery requirement) on a long-term basis from Aramco. Besides, the O2C business will be a value-creating proposition for both the giants as it focuses to channel 70 per cent of the refined crude for manufacturing high value chemical products.

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