Will RIL-Aramco-BP partnership be a force to reckon with in the fuel retail business?

It is not only Mukesh Ambani’s Reliance Industries Ltd that would gain from the proposed deal with Saudi Aramco, but the Saudi Arabian oil giant as well as the Indian consumers will benefit too. The deal, once formalised, will see a new combination coming into play in India’s petroleum retailing business — RIL plus Aramco in partnership with BP.

Earlier this month, BP and RIL had announced that they have agreed to form a new joint venture that will include a retail service station network and aviation fuel business across India. In the joint venture, 51 per cent will be held by RIL and 49 per cent by BP. The JV will assume ownership of RIL’s existing Indian fuel retail network and access its aviation fuel business.

Earlier this week, Ambani, at his company’s annual general meeting, announced that Saudi Aramco and Reliance have agreed to form a long-term partnership in oil to chemicals (O2C) division. Aramco will invest in Reliance for a 20 per cent stake in O2C at an enterprise value of $75 billion. The partnership will cover all of RIL’s refining and petrochemicals assets, including 51 per cent of the petroleum retail JV.

With this deal the play has slightly changed in India’s petroleum retail. It will be O2C (RIL plus Aramco) in joint venture with BP. Sources said, while talking with Aramco, RIL had kept BP informed as well.

According to sources in the know, the joint venture will now be formed between the proposed O2C and BP. The name of the JV is also yet to be worked out. The three players will work out the name of the retail brand.

The coming together of the giants in the petroleum retail business will open up a new identity to the segment in India which till now has been dominated by the public sector undertakings, said an industry tracker. RIL and BP’s venture will incorporate and build on RIL’s current fuel retailing network of over 1,400 sites across India, which the partners aim to grow rapidly to up to 5,500 sites over the next five years. RIL’s aviation fuel business currently operates at over 30 airports across India, providing participation in this rapidly-growing market.

But what does it mean for Aramco? Vandana Hari, Founder and CEO of Vanda Insights, said, “The RIL stake purchase fits in well with Aramco’s strategy of diversifying internationally and downstream. The deal to supply the Jamnagar refinery with 500,000 barrels per day of crude gives Aramco an assured market on a long-term basis.”

“Further, if we take the view that OPEC capacity being surplus compared with demand for its oil is the new normal in the decades to come, that crude supply contract is especially desirable for Aramco,” she added.

Aramco also has ambitious plans to grow its international trading business. It may find synergies with RIL's product exports from Jamnagar. “The mega refinery (in India) is also a good fit but it's down the road. The RIL stake will be the one that counts when Aramco goes for its IPO,” she said.