RPT-BREAKINGVIEWS-US refinery bet will grease Reliance's pumps

By Shritama Bose

MUMBAI, March 17 (Reuters Breakingviews) - Mukesh Ambani is getting his hands greasy. His $200 billion Reliance Industries RELI.NS will invest in a new refinery in Texas, America's first in 50 years, Donald Trump said last week. The Indian conglomerate has stumbled in its past energy investments stateside but its expertise in processing heavy, low-cost crude is world class and its purchases of Russian oil provide an incentive to back the U.S. president's ramp up of energy exports.

America First Refining said it had "received a 9-figure investment from a global supermajor at a 10-figure valuation" for the refinery and signed a binding 20-year offtake term sheet for the facility, which would process 1.2 billion barrels of light shale oil and 50 billion gallons of refined products under the terms of the agreement. The pact would shrink the U.S. trade imbalance by $300 billion, it added.

The terms of Reliance's exact role is unclear but it would be a valuable partner. Its Jamnagar facility in Gujarat is the world's largest single site refinery. It's a highly complex operation that can convert practically any variety of crude into higher-value products from diesel to synthetic textiles.

The Indian company stopped reporting its gross refining margins roughly five years ago but with a score of 21 on the Nelson complexity index, a system that ranks refineries based on their ability to process oil, Jamnagar is several notches ahead of Saudi Aramco-backed 2222.SE Motiva's Port Arthur refinery in the U.S, the country's largest facility by capacity.

Its technical capabilities will help with Venezuelan barrels as they come onshore. America hasn't had any greenfield refinery projects for so long because existing energy companies like Marathon Petroleum MPC.N and Exxon Mobil XOM.N have met existing demand with upgrades and locally available crude is mostly light sweet.

Yet it's hard to imagine that Reliance would be planting a flag in the U.S. unless it was under pressure from Washington which last year accused India of profiteering from Russian oil during the ongoing Ukraine war. India provides the company a huge domestic market and it suffered heavy impairments on earlier investments in U.S. shale which it exited over the past decade.

Refining is Reliance's core cash generating business and Ambani will go to great lengths to protect it. At least the Indian tycoon's latest bet plays to the group's strengths in downstream processing and his conglomerate has a balance sheet fit for a potentially costly overseas adventure.

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CONTEXT NEWS

U.S. President Donald Trump on March 10 announced the construction of a refinery in his country backed by India's ​Reliance Industries.

"Thank you to our partners in India, and their largest privately held Energy Company, Reliance, for this tremendous Investment," Trump said on social media platform Truth Social without providing further details.

America First Refining on the same day said it had received a nine-figure investment from a global supermajor at a 10-figure valuation. It also said it has signed a binding 20-year offtake term sheet with the same supermajor, under the terms of which the refinery would process 1.2 billion barrels of shale oil and produce 50 billion gallons of refined products. The agreement committed to improving the "U.S. trade imbalance" by $300 billion, America First Refining added.