Here's why Saudi Aramco is considering refinery deals in India amid shifting global oil dynamics

India, the world's fastest-growing emerging market, is in talks with Saudi Aramco, the world's top oil exporter, to secure investment in two planned refineries. 

The investment would provide Saudi Aramco with a stable outlet for its crude oil, according to a Reuters report.

India, the world's third-largest consumer and importer of oil, is strategically positioning itself to become a global hub for refining. 

This ambition is driven by the fact that Western companies are reducing their crude oil processing capacities as they transition towards cleaner and more sustainable energy sources. 

India aims to capitalise on this shift by expanding its own refining infrastructure and capabilities.

The country's strategic location, coupled with its growing domestic demand for petroleum products, makes it an attractive destination for investments in the refining sector. 

By becoming a global refining hub, India can not only meet its own energy needs but also export refined petroleum products to other countries, thereby boosting its economic growth and influence in the global energy market.

Plant upgrades and diversification

India's oil refiners have invested heavily in plant upgrades, enabling them to diversify their crude oil sources and take advantage of cheaper alternatives, including Russian oil. 

This has led to a decrease in Saudi Arabia's share of India's oil imports.

Aramco is in separate talks to invest in Bharat Petroleum Corp's (BPCL) planned refinery in Andhra Pradesh and Oil and Natural Gas Corp's (ONGC) proposed refinery in Gujarat, according to the report. 

Both state-controlled Indian firms have plans for refinery expansion.

BPCL's chairman announced in December that the company intends to invest $11 billion in its Andhra Pradesh refinery and petrochemical project. 

While ONGC's plans for a Gujarat refinery are still in the early stages, BPCL's project is already underway.

Aramco’s offer

The projects will continue as planned, regardless of Aramco's investment, the news report stated.

One of the sources was quoted as saying in the report:

State-owned Aramco has proposed supplying three times the amount of oil equivalent to its stake in each project.

The company plans to sell its share of the output either in India or through exports, according to the sources.

"We want flexibility in crude procurement. If we give them 30% stake, they want to supply crude equivalent to 90% of the capacity, which is not possible," one of the refinery sources told Reuters.

The specifics of the deal, such as the size of the potential investment and the configuration of the planned refineries, were not disclosed.

A third source with knowledge of the matter said that the two countries will try to reach an agreement before Indian Prime Minister Narendra Modi's visit to Saudi Arabia, which is planned for the second quarter.

Aramco’s interest 

Aramco has been actively searching for refining opportunities in India for many years.

In 2018, it partnered with a group of Indian companies to construct a 1.2 million barrels per day refinery and petrochemical project in western India. 

The following year, Aramco signed a non-binding agreement for a 20% stake in Reliance Industries' oil-to-chemical business.

The refinery project's immense scale has led to delays, stemming from land acquisition issues and the collapse of the Reliance deal due to valuation disagreements.

India's Oil Minister Hardeep Singh Puri announced in January that India planned to establish three new refineries, each with a capacity of 400,000 barrels per day.