India and Saudi Arabia on Tuesday signed two pacts to add a strategic dimension to their energy ties, graduating from a purely oil buyer-seller equation toward a closer strategic partnership, with the West Asian nation now set to invest in downstream oil and gas projects in India.
One of the two pacts was a preliminary agreement between Indian Strategic Petroleum Reserves Ltd and Saudi Aramco that is expected to see a greater Saudi role in setting up a second fuel reserve facility at Padur in Karnataka, Indian officials said. This follows the Narendra Modi government giving the go-ahead to an additional 6.5 million metric tonnes (MMT) strategic petroleum reserve (SPR) facilities in Chandikhol in Odisha and Padur in June last year. India had previously cleared the setting up of 5.33MMT of crude oil reserve at three locations—Visakhapatnam (1.33 MMT), Mangaluru (1.5 MMT) and Padur (2.5 MMT).
The second agreement was between the West Asia unit of India’s top refiner and fuel retailer, Indian Oil Corp. Ltd and Saudi Arabia’s’ Al Jeri company for cooperation in the downstream sector, including setting up fuel stations in the kingdom.
The two pacts were among a dozen signed by India and Saudi Arabia during the two- day visit by Modi. The Indian PM arrived in Riyadh on Monday on his second visit to the kingdom. Modi’s first visit was in April 2016. The other agreements were in areas including defence industry collaboration and civil aviation, T.S. Tirumurthy, secretary economic relations in India’s foreign ministry told reporters in Riyadh.
Besides the two pacts in energy cooperation, Saudi Arabia has expressed interest in a planned 1.2 million barrels-per-day refinery on India’s west coast, Tirumurthy said. Saudi Arabia’s national oil company, Saudi Aramco, along with United Arab Emirates’ national oil company ADNOC, inked a deal with state-run companies in India for a 50% stake in the west coast refinery. In August, Reliance Industries Ltd (RIL) had announced that it has agreed with Saudi Aramco on a non-binding Letter of Intent for an investment in RIL’s oil to chemicals division, comprising the refining, petrochemicals and fuels marketing business. Aramco’s potential 20% stake was based on an enterprise value of $75 billion for the said business division, RIL had said.
Earlier on Tuesday, in an interview to Arab News, Modi spoke of the evolving relationship between Asia’s third largest economy and the world’ top oil exporter.
“From a purely buyer-seller relationship, we are now moving towards a closer strategic partnership that will include Saudi investments in downstream oil and gas projects… Saudi Aramco is participating in a major refinery and petrochemical project on India’s west coast. We are also looking forward to the participation of Aramco in India’s Strategic Petroleum Reserves," Modi was quoted by Arab News as saying in the interview.
Modi said India sourced around 18% of its crude oil from Saudi Arabia, making it the second-largest source of crude oil for New Delhi. India imports about 80% of its total crude oil requirements, and has been making efforts to secure more sources of energy at stable prices, while promoting electric mobility at home. Greater economic interlinkage between India and its key supplier of oil is expected to benefit business partners in both the countries. For Saudi Arabia, investments into India’s downstream oil and gas industry will enable it to diversify its energy assets.