Aramco well-positioned to increase refining capacity in Asia, Fitch says

The state-owned company is buying stakes in downstream projects to lock-in more long-term oil supply to the region

Aramco's refinery in the Jubail industrial city has a capacity of 305,000 barrels per day. Reuters

Saudi Aramco is well positioned to expand its market share in Asia through the acquisition of stakes in refining and other projects that are key to securing the biggest consuming region of the kingdom’s oil, according to a report.

Aramco, the world’s biggest oil producing company, is already implementing this strategy with news this week that it plans to acquire up to 19.9 per cent stake in South Korean refiner, Hyundai Oilbank, a unit of Hyundai Heavy Industries, for about $1.6 billion (Dh5.9bn).

“We believe now is an opportune time for Saudi Aramco to further strengthen its presence in Asia, supported by the positive demand growth outlook for the region and the struggles faced by its main competitors,” said Fitch Solutions in a report on Thursday. “South Korea’s role as a key global, regional fuel refining and export hub will prove highly valuable to Saudi Aramco seeking new growth opportunities.”

Aramco is on an investment spree to snap up Asian refining and petchems assets as it seeks to boost its market share in the region that buys nearly 70 per cent of its oil.

The company, which refines about 5 million barrels of oil per day, wants to nearly double its refining capacity and its petchems production as it seeks to eke out extra value from its output.

“Crude imports from Saudi Arabia currently account for some 21 per cent of total imports by the [Asian] region, although the successful realisation of some of Aramco's ongoing, proposed projects could see the figure increase further over the coming years,” the report said.

Saudi Arabia, the world’s biggest oil exporter, is expanding its refining capacities in the kingdom and abroad, where it also has stakes in refineries in China, the United States and Japan.

Last year, Aramco agreed to partner with state-owned Abu Dhabi National Oil Company to jointly invest in a $44bn refinery on the west coast of India with a capacity to process up to 1.2 million barrels per day.

The agreement with Adnoc is the first such collaboration between the two national oil companies.

Aramco is also expanding its refining investments in China, where it owns a 25 per cent stake in Fujian Refining and Petrochemical Company.

The company signed last year a preliminary agreement to acquire a stake in Zhejiang Petrochemical’s new refinery project, with whom it also signed a crude oil supply agreement.

Aramco also signed an agreement with Malaysia's state-owned energy company Petronas last year to jointly develop a refinery and petchems complex supplied by Saudi crude.

“Aramco’s pivot towards Asia is coinciding with mixed upstream fortunes faced by its main rivals,” said Fitch. “Iran’s crude production and exports continue to face significant uncertainties due to US sanctions, while a host of Middle East and Africa producers continue to grapple with limited spare capacity and risks of unplanned outages.”