Reliance Industries' deal with Aramco: Mukesh Ambani wants chemicals to dominate Jamnagar refinery output

Reliance Industries (RIL), India's most profitable company, has prepared a blueprint for its oil-to-chemical (O2C) play as it advances the negotiations with strategic investor Saudi Aramco to sell strategic stake in the business. According to the plan, RIL wants to convert 70 per cent of its output from Jamnagar refinery and petrochemical complex to chemicals. At present, the complex produces 90 per cent fuels - primarily petrol, diesel, naphtha, kerosene and Liquefied Petroleum Gas (LPG) - and the rest 10 per cent chemicals.

"The ultimate goal is to achieve over 70 per cent conversion of the crude, which is refined in RIL's twin refineries in Jamnagar, to high-margin chemical building blocks of olefins and aromatics," said company sources. The present petrochemicals production includes polymers, polyesters, fiber intermediates, aromatics, elastomers and composites solutions.

"Saudi Aramco is keen on the concept of billionaire Mukesh Ambani and that is why it expressed its desire to become strategic partner in the business," said sources. The Saudi government-owned company, which is going for the world's largest initial public offering, plans to pick up 20 per cent stake in RIL's O2C business - which includes material assets such as two refineries and a petrochemicals complex in Jamnagar, Gujarat, besides stake in fuel retailing - for Rs 1.1 lakh crore.

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In the last annual general meeting (AGM) of RIL, Ambani announced the deal with Aramco. "As the world migrates from fossil fuels to renewable energy, we will further maximise O2C conversion and upgrade our fuels to high value petrochemicals. This upgradation will be implemented in a phased manner over the next decade to meet the rapidly increasing demand for petrochemicals, in India and the region," Ambani vaguely mentioned about the O2C plan in the annual report.

The fundamentals of the O2C strategy are to employ advanced molecule management to upgrade the refinery intermediate streams by value, said company officials. "Furthermore, RIL has developed a disruptive innovative technology, a Multizone Catalytic Cracking (MCC) process, which converts a wide range of feedstock to high value propylene and ethylene in a single riser," they said.

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RIL's Jamnagar complex is in the global limelight, as it has commissioned the world's first fully integrated Refinery Off Gas Cracker (ROGC) and petcoke gasifiers, besides the existing twin refineries, which is the world's largest single location refining facility. The Jamnagar site has complexity index of 21.1, one of the highest in the world.

According to the deal, Aramco will supply 500,000 barrels of crude oil every day to RIL's Jamnagar refinery (28 per cent of their requirement) on a long-term basis. "Aramco will be able to add substantial value through the feedstock that they supply to RIL," said the company sources. Ambani focusses on sustainability and circular economy concepts to convert RIL's O2C business as one of the top five petrochemicals companies in the world.

RIL's hydrocarbon business faced challenges because of weak global trade since 2018-end. Volatility in global feedstock prices, muted demand and incremental supply from new capacities led to the challenging environment. The refining business also witnessed uncertainty in oil supply due to heightened geopolitical tensions in the Middle East, sanctions on Iran, sharp production decline in Venezuela and armed conflict in Libya.

The production of high-value light distillate cracks was lower due to moderation in the petrol demand across key markets. RIL's gross refining margin fell for the seven consecutive quarters until June 2019, before recovering in the second quarter. The Jamnagar refineries are capable of producing Euro VI fuel.