Sunday, January 16

Asia’s richest man is turning green, but he’s still getting rich on oil


Along the Arabian Sea, the Indian city of Jamnagar is a money maker for Asia’s richest man, Mukesh Ambani, processing crude oil into fuel, plastics and chemicals. It’s also where the billionaire is making his latest bet: a $ 10 billion investment in green energy.

On a strip of arid land to the southwest of the city, Ambani’s Reliance Industries owns the world’s largest oil refining complex. It is an extensive network of plants and pipelines that can process 1.4 million barrels of oil per day in an operation that covers half the Manhattan area. In fiscal 2021, Reliance generated about 45 million tons of carbon dioxide emissions from its own operations, placing the company among the top emitters of this type in India, according to data on other companies tracked by Bloomberg. Much of that came from its Jamnagar refineries.

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Next door, in a nod to a warming and changing world, Ambani is now building factories that make more environmentally friendly products like solar panels, electrolyzers, fuel cells and batteries.

Reliance’s refinery complex stretches across the horizon in Jamnagar Photographer: Dhiraj Singh / Bloomberg

At first glance, the new investment is a strong pivot for a giant conglomerate whose fortunes have been tied to oil refining for decades. Yet even as 64-year-old Ambani touts the switch to cleaner options, crude by-products will remain one of the biggest drivers of the $ 80 billion fortune that has made him the world’s 12th richest man. .

Reliance makes nearly 60% of its $ 73 billion in annual revenue from its oil-related business, which is so lucrative that it is attracting other investors. Middle Eastern energy company Saudi Aramco is in talks to purchase an approximately 20% stake in Reliance’s refining and chemicals business.

The Ambani conglomerate is also investing in global expansion projects for the petrochemicals business that will last decades. Even if their new energy operations take off, they will contribute only 10% of Reliance’s total earnings before interest, taxes, depreciation and amortization for fiscal 2026, while the oil-to-chemicals conversion will remain at around 33. %, estimated analysts at Sanford C. Bernstein. in July.

That’s making Jamnagar a location that highlights a broader tension in the energy transition: While the world’s largest fossil fuel companies are rushing to appease investors, and chase profits, adding clean energy sources, that doesn’t indicate rapid removal of polluting fuels. It’s a contrast that plays out even as climate scientists raise warnings about the consequences of human-caused global warming.

An oil tanker docked in the port of Sikka, home to Reliance’s Jamnagar maritime terminal. India is one of the world’s largest oil consumers and demand is only increasing as its middle class buys more vehicles and consumes more products made from petrochemicals. Image: Dhiraj Singh / Bloomberg

MV Ramana, an energy policy scholar and professor at the University of British Columbia, said it would be difficult for Reliance to disassociate itself from fossil fuel companies that generate emissions.

“If you look at what Reliance’s track record has been, it’s one of expanding their fossil fuel business,” Ramana said. It is difficult to move drastically away from the oil-to-chemicals business, which is more polluting, “because it will affect your bottom line,” he said.

Reliance did not respond to requests for comment. At his June annual shareholders meeting, Ambani recognized the need for change. “The era of fossil fuels, which fueled global economic growth for nearly three centuries, cannot continue for much longer. The huge amounts of carbon it has released into the environment have endangered life on earth, ”he said. Reliance has said it will make its operations carbon neutral by 2035 with the help of projects that offset emissions.

There are also plans to build the 7,500-acre Jamnagar petrochemical and refinery complex with solar power, green hydrogen capture and use technologies and carbon dioxide. To curb pollution, about 2,200 acres of land within the facility have been turned into green pastures, where mangoes, guavas and medicinal plants are grown.

The scope of the site is so vast that it has rubbed off on the city’s economy. The facility sits about miles of salt flats, its stacks towering over low-rise houses in the surrounding towns. The Reliance logo is seen at the airport, at the many gas stations it operates, in shopping centers and on the banners of its Jio phone service. Jamnagar now has multi-story apartments and luxury cars on its roads.

The refinery towers over the rooftops of nearby towns. There are plans for technologies to capture and use solar energy, green hydrogen and carbon dioxide. Image: Dhiraj Singh / Bloomberg

The Ambani firm has invested over the past 10 years about $ 15 billion to increase profits from its legacy oil refining and petrochemical businesses, including $ 4 billion to convert petroleum coke, one of the world’s largest refinery by-products. dirty, on gas needed to power the huge Jamnagar. complex.

It is also said to spend $ 6 billion increasing natural gas production from the deep sea together with joint venture partner BP Plc. In addition, the Reliance-BP joint venture is adding more fuel stations. BP did not respond to a request for comment.

Reliance’s Scope 1 carbon dioxide emissions, those caused directly by a company’s operations, increased 60% in the year ending March 2020 to 47.5 million tonnes, primarily because it started using coke. of oil produced in refineries internally, rather than being sold to external customers, according to the company’s latest annual report. A year later, emissions were reduced to 45 million tons.

India is one of the world’s largest oil consumers, and demand is only increasing as its middle class buys more vehicles and consumes more products like plastic bottles and paint that are made from petrochemicals. Many Indian cities, including the capital New Delhi, are among the most polluted in the world. Prime Minister Narendra Modi has launched a national clean air program.

Reliance made a net profit of $ 7.2 billion) in the year ending March, the most of any Indian company. Image: Dhiraj Singh / Bloomberg

The new green business Reliance will span 5,000 acres of land. Ambani has said that a key focus will be creating products to produce solar energy, an area in which India has lagged behind China.

“When companies of this size announce such ambitious plans, it gives a huge boost to the decarbonization goals of nations and the world at large,” said Shantanu Jaiswal, BloombergNEF Director for India.

Still, turning away from polluting fossil fuels for economic reasons is difficult not just for Reliance, but for the nation as a whole. India has insisted that developed nations take bigger upfront steps to cut emissions so that poorer nations don’t feel the economic pressure.

The Jamnagar refinery has spawned a generation of entrepreneurs. “The billions of dollars that Reliance has invested have significantly boosted the local economy,” said Chandrsinh Ramsinh Jadeja, 52, who developed a construction work business for Reliance in Jamnagar. “Farmers earned money, sent their children to school and bought land elsewhere, tens of thousands of jobs were created.”

Reliance made a net profit of 537.4 billion rupees ($ 7.2 billion) in the year ending March, the most of any Indian company.

The Reliance Mall in Jamnagar. Reliance has said it will make its operations carbon neutral by 2035 with the help of projects that offset emissions. Image: Dhiraj Singh / Bloomberg

In recent years, Ambani has expanded into retail and built its digital business with investments from big names like Facebook Inc. The gigantic Aramco deal under discussion showed how important the oil-to-chemicals company remains to its future. In 2019, Ambani estimated that such a deal would block around half a million barrels per day of Saudi crude for processing at Reliance’s refineries.

The latest news on the deal boosted the company’s stock by as much as 2.7% and Ambani’s net worth by more than $ 1 billion.

“Reliance’s diversification into green energy is a starting point, it’s a welcome change. But the business is evolving, ”said Kanika Chawla, director of programs for UN-Energy, which leads the interagency collaboration on sustainable energy. “It is not a regime change.”

© 2021 Bloomberg


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