Mukesh Ambani's US Energy Pivot: A Strategic Move Amid Trade War

India's richest man, Mukesh Ambani, is using the US-China trade war to his advantage by pivoting to US energy supply, potentially replacing Chinese buyers. This strategic move could benefit Ambani's company, Reliance Industries, and is seen as a shrewd business decision.

India's richest man, Mukesh Ambani, is using the ongoing US-China trade war to his advantage by pivoting to US energy supply, potentially replacing Chinese buyers. This strategic move could benefit Ambani's company, Reliance Industries, and is seen as a shrewd business decision.

Amidst the trade tensions, Reliance Industries is poised to import US ethane, which could reshape India's fuel economics. This move could alleviate the US trade deficit concerns and provide Ambani with cheaper feedstock for his petrochemical operations. The ship carrying ethane from the US Gulf Coast to Ambani's terminal in Dahej, Gujarat, is expected to arrive soon [1].

The 68-year-old petrochemicals czar bet on North American ethane more than a decade ago. His father, Dhirubhai Ambani, was the original "Polyester Prince." Although the son has ventured into new areas and added $57 billion in retail and digital services, the annual revenue from the legacy oils-to-chemicals business is still bigger at $74 billion [1].

Historically, Reliance and other refiners have cracked naphtha, obtained by distilling crude oil, to make ethylene. The conversion efficiency is low at around 30%, compared with 80% for ethane. However, since crude oil had to be imported anyway to produce motor spirits, it made sense to use it for making polyester and other polymers as well. Ethane, which on an energy-equivalent basis is half as expensive as naphtha, hasn’t been popular until now. In fact, Qatar didn’t even bother to separate it from the natural gas it supplied to India. But even that is changing. Under a new agreement with India’s Oil & Natural Gas Corp., QatarEnergy will only provide "lean" gas. If the buyer wants ethane, it will have to pay for it [1].

ONGC recently entered into a deal with Mitsui OSK Lines Ltd., which will build, own and operate two very large carriers for the state-owned firm to import ethane. Here, too, Ambani wrote the template. Reliance co-owns a fleet of six such vessels. It now wants to lay a 100-kilometer (62-mile) pipeline to bring ethane from the terminal to another of its processing units in Gujarat. New capacities for ethane cracking are coming up, too, including by GAIL India Ltd., a public-sector firm like ONGC [1].

It isn’t clear if this entanglement with North American feedstock will expand indefinitely. Just how much more ethane could Reliance and others handle? After all, it’s still an oil-centric economy they serve. But if the dependence grows, it could profoundly alter India’s fuel economics. For one thing, Indian state-owned refiners may become unprofitable dumping grounds for Middle Eastern crude. Any residual use for the naphtha they churn out alongside transport fuels won’t compensate for the loss of its central role in making everything from polyester and detergents to fertilizers, cosmetics and pharmaceuticals [1].

Oil is on extra time in India. A third of the vehicles sold last year by the nation’s largest carmaker run on compressed natural gas. To manage pollution, and reduce dependence on imported fossil fuels, New Delhi has mandated the addition of 20% bio-ethanol in gasoline. Mass adoption of electric vehicles will further cut into gasoline demand. Even then, a government-controlled firm is setting up a 9-million-ton-a-year crude refinery in the southern state of Andhra Pradesh. I suspect the reason the project is going ahead is because the state, eager to attract capital and create jobs, is offering lavish subsidies. Otherwise, the investment case is weak [1].

Meanwhile, Ambani plans to add three more ethane carriers to his fleet. Now that Trump has fallen out with Elon Musk, the White House may have room for a new centi-billionaire guest. Both parties may gain from a closer friendship. While the trade war with China is on pause, the fate of US ethane still hangs in limbo. Although India can’t match the much larger Chinese appetite for cracking ethane, it can certainly absorb some of the oversupply. Trump will get to brag about how his trade policies are making America great again — and his sons may get some tips on how to run their telecom startup. Ambani will fight off the pressure on his margins by shifting to a cheaper feedstock [1].

The tycoon runs India’s biggest telecommunications and retail networks, but it’s only now that his family has started climbing up on the list of global celebrities. First came the glitzy, five-month-long, $600-million-dollar wedding celebration last year of the youngest of the three Ambani children, the heir apparent of Reliance’s energy business. Ivanka Trump and Jared Kushner were among the attendees. Then Trump met Ambani and his wife, Nita, at his pre-inauguration party. This fall, Nita Ambani will take over New York’s Lincoln Center for a “Slice of India” weekend. Making a mark as a big buyer of American ethane may not draw the attention of Vanity Fair. But the White House will surely take note [1].

References:

[1] https://m.economictimes.com/industry/energy/oil-gas/mukesh-ambani-asias-richest-tycoon-is-making-america-great-again/articleshow/122288700.cms