* Saudi Arabia aims to diversify economy, end oil reliance
* Saudi Aramco is central to Crown Prince's plans
* Some projects progressing slowly, others very ambitious
* Khashoggi murder has tainted Saudi Arabia's image
By Rania El Gamal and Saeed Azhar
DUBAI, July 25 (Reuters) - When Saudi Aramco was on theverge of a deal last year to buy a stake in an Indian oilrefinery, its boss quickly boarded a company jet in Paris andflew to New Delhi.
Chief executive Amin Nasser arrived unannounced early onApril 11, 2018, finalised the agreement and signed it later thatday. Negotiators had just finished hammering out the details.
His last-minute flight, after a business trip to France withCrown Prince Mohammed bin Salman, underlined the importance ofthe deal both to Saudi Arabia and its huge state oil firm.
The planned investment in the $44-billion refinery andpetrochemical project on India’s west coast is a prime exampleof how Aramco is trying to squeeze value out of each barrel ofoil it produces by snapping up refining capacity, mainly infast-growing Asia.
But it also underlines the challenge Saudi Arabia faces inreducing its heavy economic reliance on oil. The results of itsprogramme to diversify have been mixed, some projects are movingslowly and others are too ambitious, economic and energyanalysts say.
Prince Mohammed's stated goal of being able to "live withoutoil" by as early as 2020 looks set to be missed.
"Saudi Arabia's oil addiction is as strong as ever...economically, of course, the Saudi economy runs on oil. Oilstill dominates GDP, exports and government revenues," said JimKrane, energy fellow at Rice University's Baker Institute.
"That said, Saudi Arabia is changing its relationship withoil. The dependence remains. But the kingdom is squeezing morevalue out of its oil," he said.
The slow progress means the Saudi economy is likely toremain hostage to oil prices for longer than planned. Any delayin implementing change also risks denting Prince Mohammed'simage as a reformer.
SECURING THE FUTURE
Announcing his plan three years ago, the Crown Prince saidSaudi Arabia must end its "oil addiction" to ensure the world'sbiggest oil exporter and second largest producer cannot be "atthe mercy of commodity price volatility or external markets."
He spoke after a fall in crude oil prices boosted the Saudifiscal deficit to about 15% of gross domestic product in 2015,slowing government spending and economic growth.
This year the deficit could hit 7% of GDP, according to theInternational Monetary Fund, as oil-related growth slowsfollowing production cuts led by the Organization of thePetroleum Exporting Countries.
Aramco is central to the Crown Prince's reform plan inseveral ways, not least because its planned partialprivatisation will generate income for the reforms.
The company has also been involved in most of the kingdom'shigh-profile deals in the last two years as it increasedinvestment in refining and petrochemicals.
In that time, Aramco has announced at least $50 billionworth of investments in Saudi Arabia, Asia and the UnitedStates. It aims to almost triple its chemicals production to 34million metric tons per year by 2030 and raise its globalrefining capacity to 8-10 million barrels per day (bpd) frommore than 5 million bpd.
In March last year, Aramco finalised a deal to buy a $7billion stake in a refinery and petrochemicals project withMalaysia's Petronas. A month later, Nasser and a consortium ofIndian companies signed the initial deal that would give Aramcoa stake in the planned 1.2 million bpd refinery in India'swestern Maharashtra state.In February of this year, Aramco signed a $10 billion dealfor a refining and petrochemical complex in China. Last month itsigned 12 deals with South Korea worth billions of dollars,ranging from ship building to an expansion of a refinery ownedby Aramco.
"This is what I call the back to basics approach to economicdiversification in the Gulf," said Robin Mills, chief executiveof energy consultancy Qamar Energy in Dubai. "The energyindustry has the assets, capital and skills, so it's the engineof new projects – refining, petrochemicals, gas and so on."
MR UPSTREAM LOOKS DOWNSTREAM
In March, Aramco said it was acquiring a 70 percent stake inpetrochemicals firm Saudi Basic Industries (SABIC) for$69.1 billion from the national wealth fund, known as the PublicInvestment Fund (PIF).
Aramco is gaining new markets for its crude and building aglobal downstream presence - the refining, processing andpurifying end of the production line. Its aim is to become aglobal leader in chemicals.
"We are not investing left and right, we are investing inthe right markets, we are investing in the right refiningassets, we are investing where we create value from fuels tochemicals," Abdulaziz al-Judaimi, Aramco's Senior Vice Presidentfor Downstream, told Reuters in May.
Nasser, previously known by Aramco employees as Mr Upstream,is leading the downstream expansion. He wants to bring Aramco'srefining capacity closer to its oil production potential, whichis now at 12 million bpd.
Aramco wants gradually to match the downstream presence ofits big competitors and, like Saudi Arabia as a whole, to reduceits vulnerability to any downturn in demand for crude oil oroil price volatility.
"You want to secure your demand in key markets," said anindustry source familiar with Saudi Arabia's oil plans. "Youhave to become more dynamic, to become more adaptable, you haveto make sure that you secure your future. Malaysia was oneexample, India was another."
For years, Aramco has been a regular crude supplier toIndian refiners via long-term crude contracts.
Yet while it has stakes in refineries or storage assets inother important Asia markets such as China, Japan and SouthKorea - and owns the largest refinery in the United States - ithas not secured that same access in India, a fast-growing marketfor fuel and petrochemicals.
"India is a market that you just can’t ignore anymore," anindustry source said.
Aramco has also shifted its marketing strategy in China. Itis now more oriented towards independent refiners to boost Saudicrude sales after years of dealing almost exclusively withstate-owned Chinese firms.
SLOW PROGRESS
But overall, plans to wean Saudi Arabia of oil have advancedslowly.
Few details have emerged of a $200-billion solarpower-generation project announced by the PIF and Japan'sSoftBank in March 2018. It is unclear how or when the projectwill be executed, and Saudi's Arabia's energy ministry is movingahead with its own solar projects.
In a blow to potential investment, the image of Saudi Arabiaand the reputation of the Crown Prince have been damaged by themurder of journalist Jamal Khashoggi in the Saudi consulate inIstanbul last year.
Leading businessmen and politicians boycotted an investmentforum meant to showcase the kingdom's new future away from oil,and it was only big deals with Aramco that saved it.
Also, the partial privatisation of Aramco has been delayedsince it set out its plans to acquire the stake in SABIC, thoughsenior Saudi officials including Energy Minister Khalid al-Falihhave said it could now happen in 2020-2021.
The PIF, chaired by Prince Mohammed, was meant to receivearound $100 billion from the flotation. Instead it will getaround $70 billion from the sale of its SABIC stake.
The PIF made its mark on the global stage three years ago bytaking a $3.5- billion stake in Uber Technologies. But since2016, the PIF's direct investments overseas stand at just $10.5billion, according to Refinitiv data, and many of the fund'sannounced commitments have yet to materialise.
The funds' main investments over the past two years were inequity shares in companies such as electric car makers Teslaand Lucid Motors and Gulf e-commerce platform Noon.com.
Such deals would not necessarily attract inward foreigninvestment, help develop industries or create jobs.(Additional reporting by Marwa Rashad and Hadeel Al Sayegh;writing by Rania El Gamal; editing by Ghaida Ghantous andTimothy Heritage)