OilVoice - India Government Offers Saudi Firm Stake In Refinery Project

India Government Offers Saudi Firm Stake In Refinery Project

Monday, March 01, 2010

Saudi Arabian state-backed oil firm Saudi Aramco is reported to have been offered a 10% stake in the Paradip refinery by the national government. The refinery is currently under construction in the eastern state of Orissa. In addition, Aramco is believed to be interested in accessing the Indian downstream sector.

The 10% stake in the Paradip refinery has been offered to Aramco for a fee of around $650 million. Discussions on the proposal are understood to have taken place during the visit of India's Prime Minister Manmohan Singh to Saudi Arabia at the end of February.

The Indian government is also believed to have offered stakes in a number of petrochemicals projects being developed by state-run Oil and Natural Gas Corporation (ONGC) to Saudi Basic Industries Corporation.

Aramco has previously been involved in the Indian downstream sector and was part of a joint venture to build a refinery at Bathinda in Punja. However, the oil firm withdrew from the project in 1998.

Involvement in the development of the Paradip refinery would therefore represent a relatively new area for the firm. State-backed Indian Oil Corporation began building the 300,000 barrel per day (bpd) Paradip greenfield refinery three years ago. The refinery, which also includes a petrochemicals complex, is expected to be completed in May 2011 with production commencing in the following October. In total, the project is believed to cost around $5.79 billion. It will include a 104,000 bpd vacuum gas oil hydrotreater, a 78,000 bpd fluidised catalytic cracker, and a 100,000 bpd diesel hydrotreater.

As at the end of January 2010 India had a total of 18 refineries - according to the Oil and Gas Journal Worldwide Refining Survey. This gives the Asian nation a total installed capacity of around 2.84 million bpd.

While India's refining sector is large and rapidly expanding, government regulation of fuel prices has frequently led to financial losses for refiners who are unable to alter their prices to reflect the cost of crude feedstock. This serves to discourage foreign oil firms from investing India. This explains why all major refiners in the country are India-based. While Aramco's involvement would bring additional funding to the project and potentially guarantee crude supplies, the advantages for Aramco remain unclear.