Saudi Aramco to buy stake in second South Korean refiner for $1.6bn

The state-owned company has a growing appetite for Asian refining assets

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

Saudi Aramco will acquire up to 19.9 per cent in South Korean refiner Hyundai Oilbank for about $1.6 billion (Dh5.87bn) as the world’s biggest oil producing company seeks to ramp up investments in Asian downstream operations.

“Major agreements, such as shareholder rights and management of the company, will be discussed in the contract between the two companies,” Hyundai Heavy Industries, the parent company of Hyundai Oilbank said on Monday in a statement to the Korean stock exchange, where its shares are traded.

This acquisition will be Aramco’s second purchase of a stake in a Korean refiner. It also owns 63.4 per cent stake in S-Oil Corp.

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

“Saudi Aramco is building a world leading position in the downstream segment of the business in line with our strategy," a statement from Aramco said. "Asia is a growth market and we are currently in discussions with Hyundai Heavy Industries on a potential investment in Hyundai Oilbank Company.”

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

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 bpd.

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

The latest acquisition "reflects the dual objectives of capturing more of the oil value-chain and securing an advantage in the increasingly competitive Asian oil market," said Richard Mallinson, an analyst with consultancy Energy Aspects.

"Crude imports into Asia are growing faster than for any other region, which drives intense competition between the major exporters. Making downstream investments helps to protect and grow market share for these oil exporters."