RIL may tie up with Gazprom for Russia

Private sector energy major Reliance Industries (RIL) is considering expanding its oil business to the land of the Volga and Vodka. It is talking to Russian government officials to enter the country’s downstream oil sector by investing in the refinery and petrochemical industry.

The RIL move follows the recent visit of Russia’s deputy prime minister Alexander Zhukov who was in the capital early December. Talks were held between RIL officials and the Russian authorities on possible investments in Russia’s oil and gas sector. RIL may even rope in a Russian oil firm as its partner for the projects.

Although there is no confirmation, sources indicated that Gazprom, the state-run Russian oil major, may well partner RIL’s downstream ventures in Russia. RIL, it is learnt, is expected to push for stakes in upstream oil and gas assets in lieu of its investments in the downstream sector.

When contacted, RIL officials declined to comment. In what is being seen as a strategic move, RIL is concentrating on the downstream segment in Russia which offers huge opportunities. The move comes at a time when Russia is in the process of increasing government control over its oil and gas assets.

Several major global energy players like Shell and Exxon Mobil have been forced, on the pretext of regulatory issues, to divest their stakes and take on Russian state oil firms like Gazprom as strategic partners. But while Russian authorities are on a nationalisation drive in the upstream sector, its refining sector lags behind, requiring huge investments.

RIL’s move to enter this segment will, therefore, be welcome as the company will bring in global expertise to Russia’s refining segment. On RIL’s part, an entry into Russia will provide a foothold in the European markets, where there is a growing demand for high-grade fuel.

Reliance is planning to service some of the European markets with its high-grade fuel from the under-construction RPL refinery in Jamnagar. A stake in Russia’s refinery industry will only help them service this market better.

Russia has a total of 41 oil refineries with a total crude oil processing capacity of 5.44 million bbl/d. According to an EIA report, many of the refineries are inefficient, ageing, and in need of modernisation. With Russian domestic demand at 2.6 million bbl/d in 2004, refining capacity far outstrips local needs for refined products.

According to the draft plan for economic development during 2005-08, Russia will concentrate on the reconstruction and upgrading of refineries so that they can convert a higher level of crude. The draft focuses on increasing the production of high-quality light oil products, catalysts and raw material for the petrochemical industry.