15-year plan to convert Reliance into new energy company

Billionaire Mukesh Ambani's Reliance Industries Ltd has a 15-year vision to build itself as a new energy company that aims to recycle CO2, create value from plastic waste, and has an optimal mix of clean and affordable energy, analysts said. While the oil-to-chemical conglomerate has in recent times seen a focus on the consumer business, RIL's core oil-to-chemical (O2C) business is well placed to generate sustained free cash flow, BofA Securities said in a report.

"Until demand normalises, RIL is looking to maximize throughput, focus on the cost by leveraging deep petrochemical integration and continue to focus on domestic fuel marketing," it said.

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Future of O2C

The future of O2C is a new energy company and partnerships.

"RIL has a 15-year vision to build itself as one of the world's leading new energy and new material companies. It also intends to be a net carbon zero company by 2035. To achieve this, the company is open to working with global financial investors, reputed technology partners and start-ups working on futuristic solutions," it said.

This new energy business based on the principle of carbon recycling and circular economy is a multi-trillion opportunity for India and the world. The brokerage said a key focus for RIL is renewable energy, and for that, it intends to build an optimal mix of clean and affordable energy with hydrogen, wind, solar, fuel cells, and battery.

"It intends to use proprietary technology, recycle CO2, create value from plastic waste; RIL is also looking to make its operations cleaner and more customer-centric," it said.

Reliance has the largest single-site refinery at Jamnagar in Gujarat with a crude processing capacity of 1.24 million barrels per day. The brokerage said RIL is looking to make CO2 as a recyclable resource, rather than treating it as an emitted waste. While the company will remain a user of crude oil and natural gas, it is looking to embrace new technologies to convert CO2 into useful products and chemicals.

"One viable application RIL has found for such 'end of life-cycle' plastic waste is in road construction. Road constructed with post-consumer, non-recyclable plastic waste ensures enhanced durability, higher resistance to deformation, increased resistance to water-induced damages, and improved stability and strength," it said.

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In November last year, RIL confirmed plans to invest Rs 70,000 crore to establish a crude oil-to-chemicals (COTC) complex at the company's Jamnagar facility.

The company is proposing to develop a total area of 2,000 acres adjacent to its world-scale facilities at Jamnagar to build the COTC complex. The plan is also to convert the Jamnagar site's existing fluid catalytic cracking (FCC) unit to a high severity FCC (HSFCC) or Petro FCC unit, to maximise ethylene and propylene yields.

"RIL's strategy is to transform the Jamnagar refinery from a producer of transportation fuels to chemicals. The company ultimately wants to achieve a rate of more than 70 percent in the conversion of crude to olefins and aromatics," it said.

RIL in its recent annual general meeting stated that potential partnerships will help it remain competitive and better serve the Indian/ international markets. The company intends to approach the National Company Law Tribunal with a proposal to spin off its oil-to-chemical (O2C) business into a separate subsidiary to facilitate this partnership opportunity. BofA said Saudi Aramco picking 20 percent stake in O2C business is a win-win for both companies.

"RIL will be able to better utilise its refinery capabilities with availability of several grades of crude oil from super light to heavy being supplied by Aramco," it said adding the partnership going ahead will leverage the O2C value chain to maximize margins and meet the evolving needs of consumers by supplying energy, base chemicals and new materials.

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The strategic partnership with Aramco will help in increasing its crude oil to chemicals conversion ratio, which presently stands at 20 percent. "With the deal, RIL will get technological expertise from SABIC (Saudi Basic Industries Corporation), in which Aramco recently bought a controlling stake," it said. For Aramco, it creates a long-term crude supply contract of 0.5 million barrels per day (about 5 percent of current production) to RIL's Jamnagar refinery, with reduced demand risks.

Aramco currently covers only about 40 percent of its crude output via refining and strives to increase it further.

"It would give Aramco the opportunity to participate in Indian market growth story where demand will likely be strong over the next two decades," it added.

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