Saudi Arabia's Oil Minister Khalid Al Falih said that the current oil market looks positive although investments in oil are not keeping pace with the demand for fuel. The future supply situation for a number of energy resources is not reassuring, particularly for crude oil. Additionally, Saudi’s Aramco will sign a memorandum of understanding with India’s Ratnagiri Refinery & Petrochemicals.
The Kingdom of Saudi Arabia (KSA) is a sovereign Arab state in Western Asia constituting a major part of the Arabian Peninsula. Saudi Arabia is the fifth-largest state in Asia and second-largest state in the Middle East after Algeria. Saudi Arabia borders Jordan and Iraq to the north, Kuwait to the northeast, Qatar, Bahrain, and the United Arab Emirates to the east, Oman to the southeast and Yemen to the south. It is the only nation with both a Red Sea coast and a Persian Gulf coast and most of its terrain consists of arid desert and mountains.
Since the discovery of petroleum in March 1938 followed up by several other finds in the Eastern Province, Saudi Arabia has become the world's largest oil producer and exporter, controlling the world's second largest oil reserves and the sixth largest gas reserves. The kingdom is categorized as a World Bank high-income economy with a high Human Development Index. It is the only Arab country to be part of the G-20 major economies. The economy of Saudi Arabia is the least diversified in the Gulf Cooperation Council and lacks significant service or production sector aside from the extraction of resources.
The country is a monarchical autocracy; has the fourth highest military expenditure in the world and SIPRI found that Saudi Arabia was the world's second largest arms importer in 2010–2014. In addition to the GCC, it is an active member of the Organization of Islamic Cooperation and OPEC.
In 2008, Saudi Arabia with more than 260 billion recoverable barrels, which amounts to around a fifth of the world’s stock, said it will supply the world with fossil fuels for decades to come. However, it plans to add renewables to the mix. Soaring domestic energy use is expected to burn huge amounts of fuel oil unless alternatives, such as solar power, can be used instead. As a result, in September 2009, Saudi Oil Minister Ali al-Naimi set out an ambitious goal of matching oil output with solar power. Around 8 million barrels of oil equivalent per day in solar energy would make it the world’s leading solar power.
Oil’s value reached to US$70 a barrel which was threatening to India, especially at a time when Saudi Arabia seeks to join a US$30 billion refinery project in the world’s fastest growing market.
According to Oil Minister Dharmendra Pradhan, India is looking at prices hovering around US$50 a barrel to manage its finances better. Meanwhile, Saudi Arabia is aiming for oil at about US$80 to pay for its own crowded policy agenda. Additionally, Saudi Arabia plans to sign an agreement to participate in a refinery on India’s west coast as part of its strategy to secure sources of consumption for its crude.
Presently, Saudi Arabia is getting ready for an initial public offering of its state-run producer and leading efforts by OPEC to reduce output and do away with a global excess that prompted oil’s decline.
“We are a very price-sensitive consumer,’’ stated Pradhan. “From Indian consumers’ point of view, I will be more than happy if the price is around US$50 a barrel.’’ Saudi Arabian Oil Co., known as Saudi Aramco, has agreed in principle to join a proposed 1.2 million barrel a day refinery on India’s west coast, he added.
Saudi Aramco’s Chief Executive Officer Amin Nasser will sign a memorandum of understanding for the project with Ratnagiri Refinery & Petrochemicals, which is a group of domestic state-run refiners Indian Oil Corp., Hindustan Petroleum Corp., and Bharat Petroleum Corp. According to sources, Aramco may accept a 50% equity stake in the project and is expected to bring in another strategic investor.
“Things are on the table, we are discussing with each other,” Pradhan said, referring to Saudi Arabian participation in the project. “It has to be a win-win situation for both. It must be acceptable to them, it must be profitable for me also.’’ A preliminary deal has been signed with Aramco.
Saudi Arabia is known to be the top oil supplier to India amid an increasing race among producers to retain large markets. India imports about 80% of its crude requirements and has been diversifying its sources of oil supply, while seeking more favorable terms from producers in the Middle East.
Our assessment is that the potential partnership in India could be an extension of Aramco’s strategy to lock up market share by investing in refineries in Asia. Asia is known to be a region that is driving global oil demand growth. Over the last few years, Saudi Arabia has committed billions to projects in Malaysia and Indonesia, as well as a new refining and petrochemical plant in China. Additionally, we believe that Saudi Arabia would commit to maintaining stability in the oil market.
Read more: The rise of oil