Mukesh Ambani vs Gautam Adani: Rivalry between India’s two richest billionaires set to get intense
Mukesh Ambani and Gautam Adani tiptoed around each other for years to reach the top two rungs of Asia’s wealth ladder. While one of them built an empire in telecom and retail, the other established a lock on transport and energy distribution. Increasingly, though, the two billionaires from India’s Gujarat state are starting to overlap, setting the stage for a clash that could alter the country’s business landscape. Given the duo’s proximity to politics, the shock is bound to reverberate through the corridors of power as well. In the latest sign of their coalescing orbits, the Adani Group has discussed the idea of buying a stake in Saudi Aramco from the oil-rich kingdom’s Public Investment Fund, potentially linking the investment to a broader tie-up or asset swap deal, according to Bloomberg News. This is just months after Ambani’s Reliance Industries Ltd. and Aramco called off more than two years of talks to sell 20% of the Indian conglomerate’s oils-to-chemicals unit to the Saudi behemoth for about $20 billion to $25 billion-worth of Aramco shares. In an attempt to cement the partnership, Reliance even got Aramco chairman Yasir Al-Rumayyan to join its board as an independent director last year. Aramco, the No. 1 crude oil producer, is still a better fit with Ambani’s Reliance, which owns the world’s largest refining complex at Jamnagar in Gujarat. Reliance is also a leading manufacturer of polymers, polyester and fiber-intermediates. But, Adani, too, has wanted to enter petrochemicals by putting up a $4 billion acrylics complex near his Mundra port in Gujarat in collaboration with BASF SE, Borealis AG, and Abu Dhabi National Oil Co., or Adnoc. Covid-19 put a dampener on the plan. This wasn’t the first retreat from his petro-ambitions: Nothing also came of a plant in Gujarat, which was looking to rope in Taiwan’s CPC Corp. Adani’s main interest in hydrocarbons continues to be coal. He mines it in India and Indonesia, produces coal-fueled power at plants like the one in Mundra and berths vessels laden with the stuff at his vast network of ports. Exports of coal from the Carmichael mine would start soon, the group said in December, after slogging for a decade over the environmentally controversial project in Australia’s Galilee Basin. But while coal is very much India’s past and present, it’s not the future. Which is why Adani made a big bet on solar power. He also started circling around plastics. After Adani set up a new petrochemicals subsidiary last year, it became clear that sooner or later he was going to try and breach the moat of stable cash-flows established by the rival group’s founder Dhirubhai Ambani, India’s “Polyester Prince” (and father of Reliance’s current boss). The tantalizing question is whether Adani’s ambitions include a refinery as well. Back in 2018, Aramco and Adnoc were going to partner with state-owned Indian firms to set up a mammoth $44-billion refinery. That plan has gone nowhere after the project lost its original site in India’s Maharashtra state because of local political opposition. Could the Adani Group insert itself into a revival of that project? For now, the preliminary talks with Aramco seem to have a modest focus: collaboration in renewable energy, crop nutrients or chemicals, according to Bloomberg News. However, if Aramco is still keen on owning a captive refinery in India, the contours of its Adani partnership might well expand. That would put the billionaires in direct competition — though not for the first time. In June last year, Ambani told his shareholders he was embarking on his life’s “most challenging” undertaking by making a pivot to clean power and fuel. He followed up with a blitzkrieg of acquisitions in the field. Before that, it was Adani who wanted to be the world’s largest renewable energy producer by 2030. By revealing his plans for four gigafactories in Jamnagar — one each for solar panels, batteries, green hydrogen and fuel cells — Ambani put Reliance in the lead role in India’s climate-change narrative. And he did it just before the COP26 summit in Glasgow where Prime Minister Narendra Modi made a bold commitment to lower the country’s dependence on fossil fuels. Analysts like to clump Ambani and Adani together as a kind of India Inc. duopoly. “By backing the ‘2As’ at the expense of other companies, both domestic and foreign, the government is encouraging an extraordinary concentration of economic power,” economist Arvind Subramanian, an adviser to the Modi administration until 2018, and Josh Felman, a former International Monetary Fund official in New Delhi, wrote in a recent Foreign Affairs article about how India’s inward turn could stymie its rise. The two superstar business groups are indeed reducing the competitive intensity in the broader economy by swallowing smaller and weaker firms adjacent to their operations. Still, every indication suggests they’ll compete fiercely against each other. Ambani took the telecom route to emerge as the czar of India’s consumer data; Adani wants to come in from the other end by providing storage services to bits and bytes, powered by green energy. Ambani is engaged in a brutal contest with Amazon.com Inc. for control of the grocery supply chain. Adani warehouses grain for the state-run Food Corp. of India and owns the country’s No. 1 edible oil brand. Their balance sheets are different. For the past five years, firms linked to Adani have been hyperactive in the international debt market, borrowing more than any other Indian company. Ambani, meanwhile, has turned Reliance into a sparsely leveraged fortress — not a bad place to be as global interest rates harden. Visions are different, too. While Adani, 59, supplies grid power (and cooking gas, in partnership with with France’s TotalEnergies SE) to households, Ambani, who’s five years older, imagines a future in which “every house, every farm, factory and habitat could, in principle, free itself from the grid by generating its own power.” Will the two billionaires try to shape policies — and influence politics — according to their competing goals? You bet.
House panel asks govt to take concrete steps to raise domestic oil production
The standing committee on petroleum and natural gas has recommended the government to review its strategy to increase the domestic oil production and take concrete, tangible steps for the same. In its latest report submitted to the Parliament, the committee raised concern over the “very minimal” contribution of oilfields under the ‘new exploration licensing policy’ in the overall production of crude oil in the country. The report noted that the ministry of petroleum and natural gas has assured the panel that from the upcoming financial year (FY23), there would be turnaround in the production of crude in the country and it will witness an increase in production. It has suggested that the ministry to “seriously review” the strategy to increase the domestic production in crude oil and gas in the light of various policy initiatives undertaken during the last several years to assess its effectiveness and fix accountability upon the organisation or the state-run oil companies which have been mandated with the task. “The committee therefore, recommends the ministry to take concrete and tangible steps to increase the domestic production of crude oil and natural gas for overall energy security of the country,” said the report submitted on Tuesday. The recommendations gain significance as global crude oil prices are surging, raising anticipation of severe impact on India’s current account deficit, inflation and balance of payments. The panel under the chairmanship of Ramesh Bidhuri, a member of the Lok Sabha, observed that the domestic production of crude oil and natural gas assumes significance given the excessive reliance of the country on imports. India currently meets around 80% of its energy requirements through imports. With regard to the performance of state-run ONGC during the last three financial years, the panel said in its report that, there has been a consistent decline in the crude oil and natural gas production both under the nomination and NELP regimes. Further, Oil India Ltd’s performance in terms of crude production too has witnessed a decline in the last four years. The committee said that it has been informed that ONGC has initiated steps in exploration and production, including monetisation of discoveries, redevelopment of matured fields and development of new fields, among others. Although the panel noted that the Centre has laid down a road map for reducing India’s import dependence for its oil requirement and has taken several steps, it suggested study of the sectoral policies to assess the impact of the measures taken. It expressed dismay at the fact that there has been no inter-ministerial coordination mechanism to discuss the steps taken to reduce import dependence. “The committee recommends that the ministry should devise a suitable mechanism and set measurable target and assess the success of its measure in achieving the objectives,” it said.
No One Really Knows What’s Next For Russian Oil
It’s exactly one month since Russia invaded Ukraine, and the oil markets remain as volatile as ever with little clarity as to how direct and self-sanctions will impact Russian crude output as well as global oil demand. After the volatility-induced speculative unwind, which caused the 30% price fall from the 7 March high, oil prices have moved sharply higher over the past week. Front-month Brent settled at $115.62 per barrel (bbl) on 21 March, a w/w increase of $8.72/bbl and $18.69/bbl above the 16 March intra-day low. The value of the OPEC basket rose by $3.17/bbl w/w to $113.84/bbl and by EUR 2.18/bbl to EUR 103.34/bbl. Volatility remains high: according to commodity analysts at Standard Chartered, the 30-day annualized realized Brent volatility rose 10.1ppt w/w to a 21-month high of 72.8%, while the 10-day measure rose 4.9ppt to 108%. With positioning reset and significantly less crowded, crude oil prices have been staging another rally. Yet, market experts can’t seem to agree on the oil price trajectory, with key energy agencies revealing large differences in views on Russian oil output. Divergent views OPEC+ and the U.S. Energy Information Administration are the most bullish on Russian crude outlook, while the International Energy Agency and Standard Chartered are less optimistic. The latest forecast comes from the IEA: in its March 16 report, the Paris-based energy watchdog warned of a potential global oil supply shock, with ~3 million b/d of Russian oil production likely to be shut-in next month. In its latest monthly report, the IEA projects lower demand growth for 2022 by 1.1 million b/d to 2.1 million b/d thanks to reduced Russian consumption and higher prices. The main reductions in the IEA growth forecast by country were Russia (430kb/d), the U.S. (180kb/d), and China (70kb/d). The EIA was more conservative than the IEA in cutting its 2022 forecast by 415kb/d to 3.13mb/d and increasing its 2023 forecast by 77kb/d to 1.95mb/d. While acknowledging the scale of the potential demand risks, the OPEC Secretariat has maintained its 2022 demand growth forecast at 4.15mb/d. Big Supply Deficit For its part, StanChart has become even more pessimistic about the Russian outlook. In its March 9 report, StanChart lowered its 2022 forecast to 1.94mb/d, nearly a million b/d lower than its February forecast. StanChart says ongoing sanctions, continuing consumer reluctance to buy from Russia as well as shortages of capital, equipment, and technology will continue to depress Russian output over–at least–the next three years. The commodity experts have predicted that Russia’s output decline will peak at 2.306mb/d in Q2-2022. StanChart says that rebalancing the oil markets would require around 2mb/d extra supply for the remainder of 2022, mainly due to the current very low inventory levels, and an additional 2mb/d in Q2 to ease the dislocations caused by the displacement of Russian oil. StanChart’s model assumes that the current OPEC+ deal continues, no increase in Iran’s exports and U.S. output growth Y/Y is just over 1.5mb/d. But here’s the main kicker from the StanChart report: only OPEC can bridge the big supply deficit. StanChart estimates that an Iran deal could potentially provide an extra 1.2mb/d in H2-2022, still leaving a significant gap that can only be realistically filled by those OPEC members with spare capacity, particularly Saudi Arabia and the UAE. And, prospects for a sharp increase in U.S. shale production are not looking great at the moment. According to the latest Baker-Hughes survey, the U.S. oil rig count fell by three w/w to 524 while the gas rig count gained two to 137. The largest w/w increase in oil activity came in the Midland Basin, where the rig count gained four to 123. Elsewhere in the Permian Basin, Delaware Basin oil drilling activity fell by two w/w to 158, while other Permian activity fell by three to 32 rigs. The Bakken region of Montana and North Dakota registered its first w/w fall in activity in over a year, with the oil rig count losing one to 32. The latest EIA Drilling Productivity Report showed a m/m increase of 13 to 429 for Permian well completions in February, leaving them 48 lower than 2019 average monthly completions. Permian drilled-but-uncompleted wells (DUCs) fell 86 m/m to 1,396 in February, allowing monthly completions to stay significantly ahead of wells drilled. With the inventory of DUCs as well as production per rig having fallen off a cliff, U.S. producers need to sharply ramp up drilling activity just to maintain current production clips. According to StanChart, Russian oil exports to Europe could be cut to zero without medium-term price overheating, but only if Q2 dislocations are eased by large strategic stock releases and if OPEC production increases significantly. The prospects for the latter depend on whether there is a deal in the nuclear negotiations with Iran in Vienna and whether key OPEC members (particularly Saudi Arabia, UAE, Kuwait, and Iraq) are nimble enough in their policy thinking to move away from the OPEC+ agreement. If OPEC ministers accept the lower two lines as a base case(see chart above), they will conclude that there are few advantages, and multiple disadvantages, in staying within the current OPEC+ agreement.