Saudi Aramco targets China amid $200 billion spending spree

The Wires: Saudi Aramco plans to build refineries in China and Indonesia as part of a $200 billion spending program.

DHAHRAN // Saudi Arabian Oil Company plans to build refineries in China and Indonesia as part of a $200 billion spending programme to double refining capacity and explore for oil and natural gas during the next decade.

Saudi Aramco, as the state-run company is known, is preparing for talks about "final terms" for a Chinese refinery and is still waiting for "good terms to be put on the table" for a processing plant in Indonesia, Chief Executive Officer Khalid al-Falih said in an interview. Aramco will probably decide soon about whether to invest in expanding a plant it operates jointly with Japan's Sumitomo Chemical Company, he said on January 14.

Aramco, the world's largest crude exporter, is expanding refining and petrochemical production to meet domestic demand and export refined products that can fetch higher prices than oil. The company plans to boost its global refining capacity to 8 million barrels a day in 10 years, including projects yet to be announced, Mr al-Falih said.

"It's an aspiration for a longer-term growth objective," he said of the refining-capacity target in the interview at the company's headquarters in the eastern Saudi city of Dhahran.

Aramco also plans to invest in drilling for oil and gas inside the kingdom and in petrochemicals production and other downstream activities, he said.

The company is exploring for unconventional gas, including shale and tight gas, in the nation's northwestern region, Mr al- Falih told reporters on January 14. Low gas prices are a "challenge" to developing these hard-to-reach deposits, he said. Aramco's capital spending will probably rise to more than $20 billion a year if it develops unconventional gas, he said in the interview.

Aramco will invest $90 billion in the next five years to increase refining capacity by 50 per cent to 6 million barrels a day in projects "that more or less have been identified," al- Falih said. Refining capacity in Saudi Arabia itself will rise to 3.46 million barrels a day in 2016 from 2.26 million barrels, according to a presentation Aramco officials made at a conference in Bahrain in October.

Saudi Arabia's crude oil production rate in December was 9.76 million barrels a day, the Opec said in a report yesterday, using the average of several external estimates.

Most of the capacity to be added above the five-year target will be at refineries in Asia, with the bulk of that in China, al-Falih said. Aramco seeks to tap increasing consumption in China, Asia's biggest energy user, by forming joint ventures with local partners.

The CEO said he was confident about reaching final terms on a plant with China National Petroleum Corporation, that nation's largest energy producer, to be built in China's southern Yunnan province. The two companies have agreed on the scope of the project, including the refinery and marketing, he said.

"It's always key for Saudi Aramco when we invest anywhere to consider both the refining side and the retail marketing network," he said.

In Indonesia, "early indications are positive" on Aramco's plan to develop a refinery with state-run PT Pertamina, al-Falih said. He declined to predict when Aramco would conclude discussions on either Asian project.

"It took us nine years to finalise the terms with Sinopec, and it's only less than a year since we started talks with PetroChina," he said. PetroChina is China National Petroleum's Hong Kong-listed unit. "It will take some time, but I'm sure ultimately we will have a very good project with a very good partner."

Aramco will meet this month with Sumitomo Chemical to discuss "where to go from here" on the planned expansion of their jointly owned PetroRabigh refinery in Saudi Arabia. The partners missed their year-end target for deciding whether to invest $6 billion to $8 billion to enlarge the facility.

"When we said year-end, we meant 'more or less' that date," al-Falih said.

Aramco and Sinopec signed an agreement on January 14 to develop a refinery in the Saudi city of Yanbu at a cost of as much as $10 billion. The 400,000 barrel-a-day plant is likely to begin operating in 2014, al-Falih told reporters after the signing ceremony in Dhahran. Sinopec, Aramco's largest Chinese customer, agreed in March 2011 to take a 37.5 per cent stake in the Red Sea refinery, known by its acronym Yasref.

The signing coincided with a visit by Chinese Premier Wen Jiabao to the Saudi capital Riyadh.

Wael Mahdi // Bloomberg News