Russian oil giant buys Indian company to get access to new markets
Indian Essar group sells 98% of its Essar Oil Limited to Russian Rosneft and a consortium of Dutch Trafigura and United Capital Partners independent investment group. The deal attracted suitors from Saudi Arabia and Iran as it provides access to a growing market of 1.3bn people.
Buying a stake in Indian Essar Oil Limited (EOL), Russian Rosneft gets access to the most important long-term growth market, according to Bloomberg. The deal estimated at $13bn includes India's second largest Vadinar refinery situated in the western state of Gujarat and a network of 2.700 retail stations across the country.
Vadinar located in Gujarat state in Western India has a capacity of 400,000 barrels a day. It is designed to deal with low-quality Venezuelan or the Middle Eastern oil, so Rosneft will probably use supplies from Venezuela for this refinery as well. Earlier this year the Russian state company signed an agreement with Petroleos de Venezuela SA on joint development of several Venezuelan oil fields. Rosneft participates in five projects in Venezuela — Petromonagas, Petrovictoria, Petromiranda, Boqueron and Petroperija — that contain over 20.5bn tonnes (about 150 billion barrels) of oil.
Besides the refinery, the offer also includes about 2,700 Essar Oil petrol stations. The network was used for selling EOL's output and, thus, attracted major players like Royal Dutch Shell Plc and BP Plc. Essar's output was mostly sold domestically through its own stations or via state-owned retailers.
'India will be the most important product-growth market over the next 25 years making it important to Russia,' according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. Now India imports over 80% of crude oil and 2/3 of these imports that originate from Middle East. According to the Paris-based International Energy Agency's forecast, the country is expected to become the world's third largest oil user surpassing Japan this year. Moreover, India's consumption will be the world's fastest growing through 2040 due to improved life standards and a boom in car sales. 'The access to the Indian market attracted Rosneft the most,' Prashant Ruia, chairman of Essar Oil, said in an interview in Mumbai on Sunday. 'It is one of the world's largest markets. They wanted to have a piece of the market.'
Performing the purchase, Rosneft joins a strategy of making investments in overseas refineries. This scheme is used by oil-rich countries such as Kuwait and Saudi Arabia to guarantee markets during a period of stagnation. 'This would be in response to Saudi Arabia's attempts to penetrate the European market, which is dominated by Russian oil,' says Abhishek Kumar, an analyst at InterfaxEnergy's Global Gas Analytics in London. Rosneft also plans to expand further by supplying oil products to Indonesia, Vietnam, the Philippines, Australia and the other countries of the Asia-Pacific region, it said in a statement.
India and Russia continue strengthening their economic and political ties. Indian state companies invested almost $6bn in Russian oil assets in Siberia, and now Rosneft is reciprocating the favour. 'These agreements are very strategic, aimed at boosting India's energy security and boosting Russia's access to the most important long-term growth market,' says Neil Beveridge.