Policy
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Will International Oil Market Favour Prime Minister Modi?
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Transnational Gas Pipelines Continue To Elude India
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Inevitable Confusion: Gas vs Electricity As Transportation Fuels
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Regulation
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High Speed Diesel Flash Point Needs To Be Reviewed
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Alternative Energy / Fuel
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New Projects
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Market Watch
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Over 400,000 Applications Received For 78,500 Petrol Pump Dealerships
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Companies
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Scientific Design To Provide Process Technology To IndianOil MEG Plant
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L&T Hydrocarbon Engineering Bags Two Orders From IOC
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Asian Oilfield Services Ltd Reports Financial Performance
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Press Release [FREE Access]
Petro Intelligence » Clash Of Egos Bedevil Mega Refinery Project

by R. Sasankan

The tortuous twists and turns in the fortunes of the proposed 60 MMTPA refinery cum petrochemical project on the west coast in the state of Maharashtra seems to have raised deep questions about the clash of egos and wills in the petroleum industry and whether giants in the business can co-habit in peace.

A number of eyebrows were raised when Saudi Aramco decided to pick up a 50 per cent equity stake in the project that had been conceived by public sector behemoth Indian Oil Corporation. The situation grew even more complicated when Aramco – the world’s largest oil company-roped in ADNOC of UAE and parted with half of the equity stake that was granted to it.

The refinery project looks destined to remain on paper after it ran into trouble over land acquisition problems. In our previous article in this column we spoke about Saudi oil minister Khalid al-Falih’ tweet about his discussions with RIL supremo Mukesh Ambani and suggested that this was indicative of the frustration that had started to boil over because of the interminable delays in kick starting the project. Many industry experts agreed with our assessment of the situation.

The first sign of indifference over the mega refinery project became evident when B. Ashok, retired chief executive of IOC, was put in charge of its implementation. He has never been popular in the company and does not seem to command the respect of the present management headed by Sanjiv Singh. Obviously, he was appointed at the instance of the political leadership.

The general perception in the country is that the mega refinery is stuck over the location issue. Yes, it certainly is the most visible problem. But that is not really the concern of the overseas partners, Aramco and ADNOC. It is now learnt that there are some other tendentious issues between partners that have started to plague the project.

Bharat Petroleum and Hindustan Petroleum, the junior PSU promoters of the refinery project, are not directly in the picture. They have left it to IOC to deal with Aramco. ADNOC also seems to feel that its interests will be protected by Aramco. Thus, practically, there are only two active players in the mega refinery project: IOC and Aramco.

Aramco is the world’s largest oil company and has enormous resources at its command. It also employs the most modern petrochemical technologies. The refining technology the world over remains more or less conventional but petrochemical technologies keep changing. The value addition in a refinery cum petrochemical complex comes from petrochemicals. In the area of petrochemicals, IOC is no match for Aramco. UAE owns some of the best petrochemical technologies in the world.

Normally, a 60 MMTPA refinery cum petrochemical complex should be controlled by a single operator as that provides flexibility in terms of feedstock and product mix. Crude can be sourced on long-term, short-term basis or from the spot market. Multiple ownership makes decision-making difficult. In a mega project, there are different streams from refinery to petrochemicals based on different technologies. The refinery’s configuration must integrate these diverse streams to optimise product yield.

Aramco has come to India where IOC is the leader. Obviously, IOC wants to ensure that its writ runs in the refinery cum petrochemical complex. The Aramco-ADNOC combine, as an equal partner, cannot allow a situation where IOC will call all the shots.

With the land acquisition process suspended, the only initiative that the promoters could focus on was to select the consultant who would suggest the configuration for the refinery cum petrochemical complex. UOP LLC, or Universal Oil Products, had looked to be a certain winner when IOC floated the tender. But when that tender was annulled and a new one floated with modified specifications, UOP did not participate. UOP LLC is a multinational company that develops and delivers technology to the petroleum refining, gas processing, petrochemical production, and major manufacturing industries. However, the contract for the configuration was awarded to Jacobs, one of world’s largest and diverse providers of technical, professional and construction services.

Was Aramco involved in the selection of the consultant? There is no indication that Aramco was consulted in the entire exercise. Aramco’s style is to go for the technology which it considers as the best and the latest and not to be bothered about the size of the consultancy fees. For a PSU like IOC, price is an important aspect in selecting a consultant or a contractor once the bidders are pre-qualified to participate in the tender. IOC also wanted to ensure against a possible bias if the configuration study was entrusted to a technology supplier.

India’s RIL has a better idea about Aramco’s project execution style. Way back in 2006-2007, Aramco was planning to set up the Ras Tanura refinery cum petrochemical complex. RIL offered to set up the refinery. Despite the best of relations between them, Aramco turned down RIL’s offer and awarded the contract to DOW which is a technology supplier as well.

Aramco has made it abundantly clear that it is interested in India’s retail market. Anyone who invests Rs 20 billion in India’s petroleum sector is entitled to marketing rights to retail transportation fuels such as petrol and diesel. Both Shell and BP have already won such rights. However, chose to move at a turtle pace when it came to implementing the licence for retail outlets. BP is planning to join hands with RIL in setting up the retailing outlets in phases.

Will Aramco be interested in retailing petrol and diesel in a crowded market like India? The PSUs already enjoy about 90 per cent of the retailing market and are planning to more than double the number of their outlets in the next two to three years. There will not be much space left for private players. IOC is clearly aggressive in protecting its turf. Aramco cannot be expected to wrestle for licences to retail only petrol and diesel. It will surely adopt a different strategy. Aramco and ADNOC will try to market their share of products from the refinery. Their products could be sold either locally or exported. Its share of petrochemical products, if sold in the domestic market, can create problems for the existing producers including IOC. Aramco can supplement them with their products from outside. Can IOC agree to such an arrangement? There are a host of issues that need to be resolved.

Aramco seems to be exasperated over the way these contentious issues are being handled. The controversy over the location of the refinery cannot be resolved without settling these issues. IOC’s precise role in the refinery cum petrochemical complex has to be defined. If it is not to IOC’s satisfaction, the project may not take off. I am not prepared to write the obituary for the mega refinery cum petrochemical complex just yet. It looks slightly premature to do so. Aramco and ADNOC will certainly like to remain invested in India. But their interests need not necessarily be confined to just a mega refinery.



To download the latest issue 'Volume 25 Issue 21 - February 10, 2019', click here
Petro Intelligence [FREE Access]
War Of Words On Wisdom Of Subsidizing Refinery Exports
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Refinery Exports: A Bane And A Burden On Indian Consumers
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Clash Of Egos Bedevil Mega Refinery Project
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Saudi Tweet Stokes A Storm Of Speculatio
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Foreign Investment
Six Foreign Companies Bid In Second Auction
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Overseas Investment
Essar Acquires Stakes In BP’s Oil Terminals, Pipeline To Expand In UK
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OVL Awaits Overdue Dividends From Crisis Hit Venezuela
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Capacity Utilization of Gas Pipelines
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Update: PNG Connections
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LNG Import Projection By Industry Group
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Status Of Gas Pipelines Under Construction
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Trends In Domestic Natural Gas Price & International Bench Marks
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Capacity Utilization of LNG Regasification Terminals
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Story Of Two LNG Terminals Of Petronet LNG Ltd
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CNG Growth Over The Years & CNG Sales as on 1st April, 2018
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LNG Terminals in India
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CGD Factsheet As Of Sept 2018
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A total picture about Natural Gas scene including CBM in India
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State-Wise Share In CGD Business
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Update: Sectoral Consumption of Natural Gas, LNG Import and Total Net Available Gas for Sale
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Declining Rate Of Gas Flaring In ONGC’s Fields
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Merger & Acquisitions In The Indian Oil And Gas Sector
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Company-wise Length & Capacity of Product and Crude Pipelines in India
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Energy Transition Index for India
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Energy Architecture Performance Index for India
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Estimated Basin-wise Hydrocarbon Resources in India
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Categories of Indian Sedimentary Basins
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Forward Path for India-Economic Growth, Energy and Climate Change - Some Introspection
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India’s Declining Self- Sufficiency In Petroleum Products
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India: Per-capita Energy Consumption & Energy Intensity
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Increasing Share of High Sulphur Crude in Indian Refineries
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Energy Trilemma Index
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Power Availability Improves In December 2018
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Petroleum Products Import Falls In December 2018
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Share of Imports From OPEC Declined In December 2018
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Vedanta’s Oil & Gas Production Marginally Down In 2018
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Oil Import - Volume And Value
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Major End use of petroleum products in India
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Fuel & Loss In Indian Refineries: An Update
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Update: Distillate Yield of PSU refineries
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Bharat Petroleum Corporation’s Impressive Refining Coverage
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Update: Specific Energy Consumption of PSU Refineries
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India Imports Less Petroleum Products In November 2018
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OIL’s In-House Capabilities & Infrastructure to support E&P Activities
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Tenders [FREE Access]
BPCL
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IndianOil
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