Announced in 2015, the West Coast Refining and Petrochemicals Project in India was to have been commissioned in 2022. A joint venture between the three Indian state refiners – IndianOil, HPCL and BPCL – to feed India’s soaring energy demand, land acquisition for the refinery in the Ratnagiri district of Maharashtra state hasn’t even been completed, making that target 2022 date very unlikely. But it will go through, not least because the refinery has now secured the backing of Saudi Aramco and Abu Dhabi’s Adnoc.
Last week, Adnoc signed on to buy a stake in the US$44 billion project, brought in as a strategic partner by Aramco. Together, the two Middle Eastern titans will hold an equal majority stake of 50% in the project, with IndianOil at 25% and BPCL and HPCL at 12.5% each. That’s an unusual move, considering that this is a state project, and some have questioned given the foreign firms such a high stake. But as much as Saudi Aramco and Adnoc need to secure outlets for their crude in an increasingly competitive world, India needs crude far more. And with the latest US moves possibly curbing India’s sourcing from Iran, the project has to fall back on the country’s stalwart providers.
And Ratnagiri will need a lot of crude. When completed – the new target date is a still-optimistic 2025 – it will equal or best the capacity of Jamnagar (also in India), the current largest refinery in the world. The planned capacity is for 1.2 million barrels per day of crude processing while petrochemical capacity is said to be in the 18 million tons per annum region. Currently, India has a refining capacity of about 232 mmtpa, with domestic demand reaching 194.2 mmtpa in fiscal 2017. According to the International Energy Agency, this demand is expected to reach 458 mmtpa by 2040. The country is also now the world's third-biggest oil importer. More than financial certainty and domestic demand, Aramco and Adnoc’s participation guarantees that Ratnagiri will always have enough crude to run. And it fulfils Aramco and Adnoc’s ambitions to move further down the value chain into downstream, with Aramco fulfilling its target of having stakes in key refineries in Asia (India, China, Southeast Asia through Malaysia) and the Americas (Port Arthur). Adnoc, too, has invested in India before – having bought a stake in the country’s strategic petroleum reserve in Mangalore.
With financing and partners in place, it would seem as if Ratnagiri is a done deal. But there is one major stumbling block – land. The state government of Maharashtra has yet to secure the 15,000 acres required for the refinery, facing stiff opposition from local farmers and laws that state that at least 70% of land owners must give consent for land acquisition. With general elections due in India next spring and opposition parties seizing on the issue, it is likely that no on-the-ground moves will be made until the next government is in place. The National Democratic Alliance (NDA) led by Narendra Modi is expected to win, but will be treading cautiously around this contentious issue. The 2025 target seems ambitious, and by the time it starts operations, India’s oil demand may have grown even more.
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Brent’s spectacular dive on July 11 wiped $5.46 oﬀ the price of the front-month ICE futures contract — the biggest single-day loss in seven years — and led some to ask if it was the start of an oil price “correction.” We don’t think it was.
While crude was justifiably spooked by the prospect of the US-China trade war spiralling out of control with a new threat from Washington the previous day to levy a 10% tariﬀ on $200 billion worth of annual imports from the Asian giant, it is not enough to upturn the oil market’s tightening supply fundamentals.
The limited spare capacity available with Saudi Arabia, its Gulf OPEC neighbours and Russia looks likely to be stretched thin compensating for the continuing sharp declines in Venezuela, Angola and Mexico in the coming months. That leaves the market vulnerable to the unforeseen but routine major outages in Libya and Nigeria, not to mention unexpected and prolonged shutdowns due to technical glitches and union actions, as happened with the 360,000 Syncrude project in Canada, or could be about to unfold in the oil fields of the Norwegian North Sea.
More importantly, that small spare capacity leaves the market fully exposed to a supply shock on account of Iran if the US adopts a scorched-earth policy of trying to squash the Islamic Republic’s oil revenues to zero.
Yes, major trade wars hurt economic growth, which is a negative for the world’s oil consumption. But it is impossible at this stage to quantify the impact of the US- China tariﬀs battle on oil consumption. Besides, there is a possibility that the two sides return to the negotiating table and the additional tariﬀ threats are set aside.
There is, however, one bearish scenario for oil. It’s a wildcard for now but one to keep an eye on: the US and Iran might agree to talk. If a compromise is found on moving Iranian and Hezbollah troops away from Syria’s border with Israel during the Trump-Putin summit next week, it could pave the way for talks between Washington and Tehran. Trump this week again indicated he was open to the idea.
But if the US sanctions proceed as planned and the trade tensions subside, the OPEC/non-OPEC combine might be struggling to keep the world supplied by the end of 2018, the polar opposite of where the producers began the year.
MOSCOW (Bloomberg) -- Iran said Russia is ready to invest as much as $50 billion in its oil industry even as Western majors are pulling out of deals with the republic amid the threat of U.S. sanctions.
President Vladimir Putin has confirmed the spending plan, with at least three deals worth some $15 billion already on the table, Ali Akbar Velayati, foreign policy adviser to Iran’s supreme leader, said in Moscow Friday. Russia is ready to invest in crude exploration and production, as well as refining, he said.
MOSCOW (Bloomberg) -- OPEC and its allies could boost oil production by more than the 1 MMbpd agreed last month if needed, Russia’s Energy Minister Alexander Novak said.
“I can’t rule out that if there is a need for more than 1 MMbbl we will be able to quickly discuss it all together and make all necessary decisions,” Novak told reporters in Moscow on Friday. The producers have “all needed tools,” if necessary, he said.