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Reliance-Aramco deal delayed, Reliance to spin off oil-to-chemicals business into separate subsidiary

July 16/2020

MOSCOW (MRC) -- Reliance Industries says that due to unforeseen circumstances in the energy market as well as COVID-19, its talks with Saudi Aramco to form an oil-to-chemicals (O2C) partnership have not progressed according to the original timeline, reported Chemweek.

Mukesh Ambani, chairman and managing director of Reliance, said during the company's annual shareholders' meeting on Wednesday that Reliance would approach the National Company Law Tribunal (Delhi, India) with a proposal to spin off its O2C business into a separate subsidiary to facilitate a partnership with Aramco. Ambani said he expects the spin-off to be completed by early 2021 but did not provide a date for the partnership with Aramco, which was originally due to be completed in March 2020.

Ambani said that Reliance remains "committed to a long-term partnership" with Aramco. However, he did not say whether this would involve Aramco buying a stake in the O2C business, as previously announced. Aramco had been planning to buy a 20% stake in the O2C division for USD15 billion, according to a nonbinding agreement reached in August 2019. However, the collapse in crude oil prices this year has complicated asset valuations and caused analysts to question whether the deal will go ahead, analysts say. Press reports in India say the deal is frozen.

Ambani told shareholders that the fiscal year ended 31 March was the most challenging for the global refining and petrochemical industries. Even in this uncertain and volatile environment, our O2C business outperformed the sector and delivered an EBITDA of 553.94 billion Indian rupees (USD7.3 billion), he said.

Ambani said that in 2020, business and consumer activity had come to a halt leading to unprecedented demand destruction and dislocation of margins. The company reports that all its manufacturing facilities have nevertheless continued to operate at more than 90% capacity utilization.

The company says that during India's lockdown, it grew its petchem and fuel exports by more than 2.5 times in just two weeks. In April 2020, the O2C business accounted for almost 50% of India's petrochemical and fuel exports, it says.

Ambani said that the company had commissioned India's first butyl rubber (BR) plant, which places its among the world's top-10 makers of the product. Reliance partnered with Sibur (Moscow, Russia) in a joint venture, Reliance Sibur Elastomers, to build the BR unit at Reliances integrated petchem site at Jamnagar, India, part of the O2C business.

The company says that its O2C business has competitive feedstock streams that are the building blocks for specialty and new value chains of acetyls, acrylates, phenols, and polyurethanes. Ambani told shareholders that Reliance had been approached by international companies for partnerships in its petchem business, including to utilize these basic petrochemicals.

These potential partnerships will help us build competitive manufacturing capacity at our existing sites to serve the deficit Indian market that still depends on large-scale imports of chemicals," Ambani said. "With this we will have an integrated and competitive O2C portfolio, which is valuable to global companies as it provides access to the large and growing Indian market."

Ambani said it is imperative that the energy industry adopts a clean, circular, sustainable, and planet-friendly model that delivers green and affordable energy. This can be achieved by making carbon dioxide (CO2) a recyclable resource, rather than treating it as an emitted waste. While Reliance will remain a user of crude oil and natural gas, we are committed to embracing new technologies to convert our CO2 into useful products and chemicals.

The company says it has made substantial progress on photosynthetic biological pathways to convert its CO2 emissions at the Jamnagar site into high-value proteins, nutraceuticals, advanced materials, and fuels.

Reliance plans to develop next-generation carbon capture and storage technologies. It is evaluating novel catalytic and electrochemical transformations to use CO2 as a valuable feedstock. Reliance says it also has proprietary technology to convert transportation fuels into valuable petchem and material building blocks. The company intends to substitute transportation fuels with clean electricity and hydrogen.

Ambani said that the company would combine its capabilities in digital, power electronics, advanced materials, and electrochemistry to build full stack electrolyzer and fuel cell solutions in India. It will build an optimal mix of reliable, clean, and affordable energy with hydrogen, wind, solar, fuel cells, and battery, he said. Reliance has committed to achieve net zero carbon emissions by 2035.

Ambani has set a 15-year vision to build Reliance as one of the world's leading new energy and new materials companies. The model envisages a large coalition of global financial investors, reputed technology partners, and startups working on futuristic solutions, he said.

The new energy business based on the principle of carbon recycle and circular economy is a multi-trillion opportunity for India and the world, Ambani said.

As MRC wrote previously, last August, Saudi Aramco entered into a non-binding initial agreement to buy 20% stake in Reliance Industries oil to chemicals divisions with an enterprise value of USD75 billion. The oil to chemicals division included RILs Jamnagar refining complex, petrochemicals and fuels marketing businesses. 

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.

Saudi Aramco is an integrated oil and chemicals company, a global leader in hydrocarbon production, refining processes and distribution, as well as one of the largest global oil exporters. It manages proven reserves of crude oil and condensate estimated at 261.1bn barrels, and produces 9.54 million bbl daily. Headquartered in Dhahran, Saudi Arabia, the company employs over 61,000 staff in 77 countries.

Reliance Industries is one of the world's largest producers of polymers. Thus, the company produces among others polypropylene, polyethylene and polyvinyl chloride.
Author:Margaret Volkova
Tags:PP, PE, LLDPE, crude and gaz condensate, PP random copolymer, propylene, ethylene, petrochemistry, natural rubber, Sibur Holding, Reliance Industries, Saudi Aramco, India, Rossiya, Saudi Arabia.
Category:General News
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