Saudi Aramco Poised to Push Deeper Into Refining Business
- Pipeline
- Saudi Aramco News
- Other Media
Author: Oil Daily
Released 16 January 2006
January 12, 2006 - Saudi Aramco is poised this year to make major decisions on new downstream projects, including the selection of foreign partners for two proposed grassroots refineries.
The downstream plans may attract fewer headlines than Saudi Arabia's upstream expansion, but are just as momentous. If all of the kingdom's proposals for domestic and foreign downstream expansions announced last year go ahead, state Saudi Aramco's gross refining capacity is set to increase from 3.9 million barrels per day to 6 million b/d by 2011, bringing it within reach of the world's largest refiner, Exxon Mobil -- based on its current refining capacity of 6.3 million b/d.
At home, Aramco has a number of large schemes already under way or at advanced stages of study. A massive joint venture refining and petrochemicals project at the Rabigh refinery is on track for completion by 2008, in partnership with Japan's Sumitomo Chemical. Aramco is now deciding which companies it will partner with in the construction of two brand-new export refineries, a 425,000 b/d plant in Yanbu on the west coast and a 400,000-450,000 b/d facility in Jubail on the east coast. Chevron, ConocoPhillips, Marathon and Total were short-listed late last year.
Aramco is also looking to replicate the Rabigh blueprint of refining and petrochemicals integration at both the large Ras Tanura refinery and the smaller domestic Yanbu refinery, by 2010 and 2012, respectively.
For decades, Aramco has been regarded as the planet's central bank for crude oil, opening up the taps when needed. So why the sudden interest in downstream products?
"People look at Aramco as a national oil company, but it is really an international oil company," said Alan Gelder, vice president for downstream oil at UK consultancy Wood Mackenzie. "If you look at the breadth of their operations, the way they add value to their assets and their competitiveness, they behave like an IOC."
Aramco's downstream activities cover eastern and western markets, refined products and petrochemicals.
In the US, Aramco and partner Royal Dutch Shell are considering expanding one of their three Motiva joint-venture refineries from 285,000 b/d to 600,000 b/d, while in China, Aramco has teamed up with Exxon Mobil and state Sinopec to triple capacity at the Fujian refinery to 240,000 b/d. Aramco has also been looking to participate in a new 200,000 b/d refinery in Qingdao, although Sinopec has started to build this on its own.
In the Philippines, Aramco is conducting preliminary studies on a new $5 billion refinery at Mindanao, southern Philippines, to supply East Asia and the US West Coast. Aramco is already a 40% shareholder in Philippine Petron, which runs a 180,000 b/d refinery.
Aramco's existing overseas interests also include stakes in large refiners in South Korea and Japan. Aramco has been studying opportunities in India.
While majors such as BP and Shell have been divesting large portions of their chemical portfolios in mature markets, Aramco has been busy adding petrochemicals to its refining business, taking advantage abundant and cheap feedstock, and ready sources of capital.
"Aramco found sites that are structurally competitive," Gelder said. "The economics of Rabigh as a refinery was cash positive but weak; with its integration Aramco is creating a world-class complex where the central steam cracker unit will be fed by cheap and competitive ethane," he added.
Other industry sources say that refining has simply become too much of an attractive business to ignore in the Middle East Gulf. Extensive investments are also under way in Kuwait, the UAE, Bahrain and elsewhere.
"I have even had private companies with no experience in refining asking us to undertake a feasibility study for the construction of a refinery in Saudi Arabia," one contractor told Oil Daily.
"For Aramco, integrating petrochemicals and refining is a matter of adding value from existing commodities exports; it's about creating vertical integration across the board," the contractor added.
However, tough competition for Asian markets has also played a role in Aramco's decision to expand its refining operations at home.
The installation of a 200,000 b/d condensate splitter at Ras Tanura in September 2003 temporarily helped solve a market shortfall in high-value product exports such as gasoline, naphtha and kerosene, but with high demand growth from China, India and elsewhere, Aramco must build new refineries to maintain and increase its market share, according to one downstream consultant.
"Currently Gulf oil producers can't meet the product specifications in the Asian-Pacific market," said the consultant. "The Gulf has lost some ground in European markets; a loss in Asia -- the world's fastest demand growth area -- would deal them a significant blow."
Other considerations in Aramco's domestic refining plans are an increase in local demand for refined products as the population grows, and the steep rise in petrochemicals production, which uses some refined products as feedstock. Saudi Arabia's petrochemicals giant Sabic is projected to boost production from 42 million tons per year in 2004 to 65 million tons/yr by 2008.
Oil demand for transportation is expected to grow by 2.8% annually through 2030, in line with GDP growth, whilst petrochemicals accounted for 58% of the kingdom's total industrial energy consumption during 2003, according to the International Energy Agency's latest World Energy Outlook.