Aramco plans to expand upstream and downstream market share

Aramco’s chief executive, Amin Al Nasser, says the state oil company plans expansion of both upstream and downstream – including further investments in chemicals – over the coming year.

Saudi Aramco, the kingdom's national oil company, has signalled that it will continue to pursue an expansionist strategy as it builds toward a public share sale by 2018.

In Aramco’s just-published annual review, its chairman, and recently appointed Saudi energy minister Khalid Al Falih, noted the company’s record oil output last year, which averaged 10.2 million barrels per day, from 9.5m bpd the year before, and promised that “expanding oil and gas supplies … is at the core of Saudi Aramco’s business”.

Aramco’s current maximum sustainable capacity is about 12 million bpd, meaning it is the only oil company holding back significant production.

Aramco’s chief executive, Amin Al Nasser, echoed the sentiment, saying the state oil company plans expansion of both upstream and downstream – including further investments in chemicals – over the coming year. He said this will include continued aggressive pursuit of oil market share.

“We are preserving our market share which continues to increase year-on-year,” said Mr Al Nasser after the review was published.

“This year, as last year, it is increasing [and] our market share is picking up.”

The remarks come ahead of Thursday’s meeting of Opec oil ministers in Vienna and will be taken as a signal that Saudi Arabia will stand firm on the relatively laissez faire policy to world oil markets. The rationale – that higher-cost producers, such as US shale, Canadian and deepwater offshore, should be first to cut to alleviate a glut – seems to have been vindicated, as benchmark oil prices lifted above US$50 per barrel last week for the first time in seven months.

Aramco’s corporate strategy is a key factor for the oil markets in coming years, especially as the company seems to be taking a new tack.

As Mr Al Falih said in Aramco’s review the company’s aim now clearly is to become “a top-tier, globally integrated energy and chemicals company”.

That means creating a company that is more in the image of ExxonMobil – although it would be potentially more than twice the size of Exxon, and have access to the world’s largest source of crude reserves.

Exxon has for decades pursued a corporate strategy of creating a “natural hedge” by having its upstream production about in balance with its downstream refining capacity – which is about 1 million bpd more than upstream output at around 6.4 million bpd.

The fruit of that strategy can be seen in Exxon’s share price performance during the latest downturn, when it held up better than its peers and lost only about 30 per cent at the lowest point, before rebounding strongly.

Exxon shares ended last week above $90 a share, down only about 10 per cent from their level when oil prices were above $100 per barrel, even though oil prices are still more than 50 per cent lower than their 2014 peak.

The path toward making Aramco the world’s largest integrated oil company is taking shape with deals such as last week’s announcement that it had secured a long-term deal to supply 270,000 bpd to Indonesia’s Cilacap refinery, the expansion of which it is jointly funding with Pertamina, its Indonesian counterpart. Aramco has potential deals for two more refineries in the South East Asian country.

In its annual review, Aramco also highlighted the recent start-up of its giant Sedara petrochemicals joint venture with Dow Chemical, as well as expansion plans for Petro Rabigh, the venture with Sumitomo that also has a 25 per cent public share float, which recently tendered for contractors to expand.

Petro Rabigh plans to add a polyether polyols plant with annual capacity of 220,000 tonnes, a naphtha-treating unit to produce clean fuel and a sulphur recovery unit with capacity of 106,000 tonnes a year.

Mr Nasser also said Aramco plans to raise production at its giant Shaybah oilfield to its newly expanded capacity of 1 million bpd, while the company was also offering Asian customers more Arab Light volume from the field.

It is competing head-to-head in Asia with both Iran and Iraq, which also have greater volumes to sell this year.

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