India and Saudi Oiling Supply and Refining Deal Wheels as Korea Looks to Bag Storage Construction

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Researched by Industrialinfo.com - (Industrial Information Resources, Incorporated; Houston, Texas). SK Engineering (Seoul, Korea) is claiming the inside track position in the bidding for the underground crude oil storage facility, which the Indian Oil Corp (IOC) (New Delhi) is planning to build. SK has made a joint presentation in conjunction with the Korean National Oil Corporation (Seoul, Korea) to the Indian ministry of Petroleum and Natural Gas and an Indian team made up of ministry officials, IOC and Engineers India Limited (New Delhi) executives is scheduled to visit Korea for an onsite inspection of storage caverns the Korean company has already constructed.

This development follows an earlier announcement by IOC that it intends to build up India's strategic reserve of crude oil. IOC has been talking to Saudi Aramco (Riyadh) for assistance in building the national reserve to about 37.5 million barrels. Currently, Saudi Aramco supplies over 450,000 bpd to India, which represents about 25% of the country's crude imports, which feed 70% of national crude requirements. By 2030 India's demand for oil is expected to at least double with the IEA estimating that by then 94 % of demand will have to be met by imported crude.

Saudi Aramco has said that it will consider participating in building five million tons of strategic crude oil storage capacity in Vizag and Mangalore. The investment needed to construct the facility will be about $350 million and the stored crude inventory will be worth (at beginning of March 2005 prices) about $1.1 billion. The storage, which will be equivalent to fifteen days of oil consumption, will boost India's existing 7.3 million tons of crude tankage and 6.8 million tons of product tankage capacity. These current storage facilities can meet India's needs for nineteen days and the new crude storage will add another fifteen days to reserve capacity.

In further moves for interaction between the Saudi and India oil sectors, Saudi Aramco chief executive officer, Abdullah S Jumah, has said that Saudi Aramco would continue to work with its Indian counterparts to identify commercial opportunities in the downstream sector that make sense for the two companies involved, as well as for the Indian consumer. The downstream investments could entail a refinery and petrochemical complex.

Previously, after walking out of IOC's nine million ton Paradip refinery project in Orissa, Saudi Aramco was a short-listed bidder for the privatization of Hindustan Petroleum Corp (HPCL) (Bombay), which privatization failed to come to fruition, as the Indian government abandoned the process at the time when interested companies were conducting their due diligence studies.

Jumah would not say whether Saudi Arabia was willing to sell crude oil to India on long-term contracts instead of the present one-year term. However he did say, "These are evergreen contracts, and we will renew them."

Jumah also said that SA plans to set up, a large 400,000 bpd export refinery in Saudi Arabia with Indian participation and has been talking to Indian oil companies, including ONGC (Oil and Natural Gas Corporation) (Dehradum, India), IOC and Reliance Energy (Bombay, India), and has cleared ONGC's bidding for gas field development projects in Saudi Arabia. Talks between IOC, OGNC and SA on the setting up of the Saudi refinery have taken place in New Delhi.

Jumah said that his company's acquisition of equity in Showa Shell in Japan was an example of how Saudi Aramco was willing to wait for the right time to forge partnerships.

In terms of sustained supplies of crude, Jumah said that Aramco has 260 billion barrels of crude reserves and is 'working hard' to add new reserves. With present global demand at about 80 million bpd he said that he expected SA to add another 200 billion barrels to existing reserves, adding that more than half of Saudi Arabia’s potential hydrocarbon bearing area is still unexplored. He said that Saudi Arabia could now produce eleven million bpd and easily sustain that production for the next five decades. While this total includes 1.5 million barrels of spare capacity the kingdom is working towards a capacity of twelve million bpd and even to fifteen million bpd in the long-term. (U.S. consumption currently is about 20 million bpd).

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