The world’s largest oil company is setting up a refinery in India, despite farmer protests

The commencement of Saudi Aramco’s refinery project in the port city of Ratnagiri, in Maharashtra, India, seemed improbable following protests by thousands of farmers last month. The farmers refused to give up their land, which is used not only for growing mangos and cashew nuts, but also by fishermen.

However, the project is set to go ahead as the central government has assured the CEO of Saudi Aramco, Amin H Nasser, that the acquisition of the land will take place.

What’s more, the world’s largest oil company is bringing some added muscle from the Middle East to develop the project, which will mark its entry into India’s oil refining space.

On 25th June, Saudi Aramco signed an agreement with Adnoc, the national oil company of Abu Dhabi, to jointly develop the $44 billion refinery and petrochemicals project in Ratnagiri. The complex, slated to be one of the largest refineries in the world, will produce around 1.2 million barrels of oil per day and commence operations by 2022.

The move follows reports last month that Aramco would dilute half its proposed 50% stake in the project to Adnoc. The remaining 50% in the project will be held by India’s three state-owned oil companies - Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum.

While 22,000 farmers and 4,500 fishermen are expected to be impacted by the seizure of 15,000 acres of land, the government has emphasised the benefits of the project- a boost to GDP and job creation - as well as a need to ramp up the domestic production of oil, given the high demand and high cost of importing oil.

First refining, then retail

Saudi Aramco will reportedly supply 50% of the fuel to the refinery. However, the company’s ambitions don’t just stop at refining. It wants to cover all processes in the downstream value chain. The move makes sense, since India is the third-largest consumer of oil in the world after the US and China and despite its green energy targets, will not reduce its consumption of oil in the years ahead.

Along with Adnoc, the Saudi Arabian state-owned producer plans to enter the petroleum retail sector in India. As per local rules, it will require an upfront investment of ₹20 billion ($294 million) to do so.

For a company that’s selling off a 5% stake for $100 billion, that kind of money is cheap change.