Mukesh Ambani's Strategic Move: India Set to Become a Global Plastic Hub with U.S. Ethane
Mukesh Ambani in the Spotlight Again
Mukesh Ambani, Asia's wealthiest individual, is making headlines once more. This time, the focus is on a significant import of ethane gas from the United States, which was previously directed to China but is now heading to India. The trade war initiated by former U.S. President Donald Trump has led to substantial global shifts, presenting India with a unique opportunity. Ambani's company, Reliance, is preparing to receive this gas at its facility in Dahej, Gujarat. This ethane will be crucial for producing ethylene, a key component in plastic manufacturing, positioning India as a potential global hub for plastics.
Ambani's Bet on Ethane
Around ten years ago, Mukesh Ambani placed a significant bet on U.S. ethane. In 2017, his company Reliance launched an ethane cracker unit in Dahej, marking a pioneering initiative globally. At that time, Reliance claimed to be the first company to import ethane from North America. This foresight could now serve as a powerful asset in trade negotiations between India and the U.S., especially amidst discussions surrounding a $43 billion trade deficit. India can leverage its gas purchases to negotiate tariff reductions, particularly with the expiration of a 26% tariff deadline on July 9.
The Role of Ethane in Industry
Reliance's initiative extends beyond mere commerce. Ethane, a component of natural gas, plays a vital role in plastic production. This colorless, odorless gas is transported in liquid form via specialized ships. Currently, one such vessel, STL Qianjiang, is en route from the U.S. Gulf Coast to Dahej. Reliance operates six such ships and plans to add three more to its fleet.
Why Ethane is Significant
Previously, Reliance and other refiners relied on naphtha, derived from crude oil, for plastic production. However, naphtha yields only 30% ethylene, while ethane can produce up to 80%. This makes ethane a more cost-effective and efficient option. Additionally, ethane is approximately half the cost of naphtha in terms of energy. Historically, ethane was not prioritized in India, and even natural gas from Qatar did not separate ethane. However, this is changing, as Qatar Energy has stipulated in a new agreement with India's Oil and Natural Gas Corporation (ONGC) that only 'lean' gas will be supplied, requiring separate payment for ethane.
Impact on India's Oil Economy
The increasing use of ethane could significantly alter India's oil-dependent economy. Currently, Indian refineries primarily rely on crude oil from the Middle East. However, if ethane usage rises, some refineries may face financial challenges. Naphtha, which has been essential for producing polyester, detergents, fertilizers, and cosmetics, may see a decline in demand.
The Friendship Between Trump and Ambani
Ambani's strategy could benefit not only India but also the U.S. The trade war initiated by Trump has raised questions about the demand for American ethane. China was a major buyer of this gas, but India could potentially fill that gap. While India may not purchase as much ethane as China, it can help alleviate oversupply in the U.S. market. This presents Trump with an opportunity to tout his trade policies and claim he is making America great again.