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Saudi Arabia rewrites its oil game with refining might

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Saudi Arabia’s rapid transition into one of the world’s largest oil refiners adds an extra dimension to the oil exporter’s role as the driver of OPEC policy.

When it attends OPEC’s next meeting in two weeks, it does so with major new state-of-the-art oil refineries that can profit from cheaper crude and reviving world fuel demand – exactly as international oil firms have over the past six months.

The kingdom now has stakes in more than 5 million barrels per day (bpd) of refining capacity, at home and abroard, landing it a place among the global leaders in making oil products. Its own target of 8-10 million bpd of refining firepower would eclipse even ExxonMobil.

“Saudi have moved into the product business in a big way,” said Fereidun Fesharaki, chairman of FGE energy.

Its oil trading arm, Aramco Trading, could soon find at least two thirds of its trading focused on products such as diesel, gasoline and heating oil rather than crude, Fesharaki said.

Years of investment was designed to fuel the transport, air conditioning and power generation for the kingdom’s economic growth. But as OPEC members fight for market share, Aramco’s refineries also give it a natural outlet for its 10 million bpd of crude production.

“In contrast with the crude market which is shrinking, the product market is becoming more global,” said Antoine Halff, chief oil analyst with the International Energy Agency.

The crude oil price rout this year catapulted refining to the fore; trading and refining last year soared to 60 percent of integrated oil companies’ first quarter earnings, compared with 18 percent last year, according to Reuters calculations.


While crude oil producers who lack a developed refinery sector – such as Nigeria – effectively leave this money on the table for refiners, Aramco and others in the Gulf can now cash in.

“The crude is so cheap it’s pretty much free for them,” said Amrita Sen of Energy Aspects. “The margins are going to be massive. It makes trade flows in products very different.”

Other Organization of the Petroleum Exporting Countries members, including fellow Gulf states Kuwait and the United Arab Emirates, have also boosted refining and added trading arms. But their refineries worldwide, hovering near 1 million bpd each, are only a fraction of what Aramco has built in just a few years.

“The Saudis have a much wider market there because they are competing globally,” Halff said. “They diversify vertically by capturing different parts of the value chain and it becomes a hedge and it gives them a lot more market access.”

Aramco has added more than 1 million bpd in capacity through a controlling stake in Korea’s S-Oil as well as its two heavy hitting refineries at home, Yanbu and Yasref, both with 400,000 bpd in throughput. Jizan, due on in the Kingdom in 2018, would add a further 400,000 bpd.

The growth puts Aramco’s owned or equity stakes refining at 5.4 million bpd, at least 40 percent above a decade ago. Aramco itself markets more than 3 million bpd of that, tying it with Shell as the world’s fourth largest oil refiner.

The shift could also enable it to funnel more crude into its own plants, meaning the nine-year high of 7.89 million bpd it exported in March could be the high water mark. Already, it has turned down requests from China for extra crude.

“The volume of crude being sold is still huge,” Fesharaki said. “But it shows the transformation in the next five years in which the companies become more of product players and will have automatically less of an influence on the crude market.”

12 Comments on "Saudi Arabia rewrites its oil game with refining might"

  1. rockman on Mon, 25th May 2015 12:40 pm 

    Guess better late then never for the media to catch on what”s been highlighted here for at least two years. But they seem to ignore the control of those refinery JV’s especially with China and the Dutch. Those JV partners didn’t invest tens of $billions to just let those profucts ALWAYS flow to the free market. They also seem to pay little attention to the largest refined product exporter on the planet…the USA.

  2. BobInget on Mon, 25th May 2015 1:02 pm


    CALGARY – A fight between Canadian and Saudi Arabian oil producers is expected to play out on the U.S. Gulf Coast during the course of this year, as the two countries battle for market share in the world’s largest refining district. The fight could help keep oil prices depressed for another six months.

    ‘The glut is going to go on’: Why oil prices won’t be bouncing back any time soon

    The world’s major producers continue to pump oil at record levels, dimming hopes of a price rebound in the near future.
    Citigroup analyst Edward Morse released a report Monday that points to an oversupply of oil on the Gulf Coast thanks in part to an influx of heavy crude from Canada, even without TransCanada Corp.’s long-delayed Keystone XL pipeline.

    At the same time, the report says Saudi Arabia is attempting to regain its market share in the area.

    The 2014 showdown between light oil producers — U.S. shale oil companies and OPEC members such as Saudi Arabia — for share of the North American refining market will change, according to Citigroup. “Now the confrontation should shift to sourer and heavier crudes,” the report said.

    Oilsands crude is considered heavy, because it has the consistency of molasses, and sour, because of its sulphur content.

    Scotiabank vice-president and commodity market specialist Patricia Mohr agreed there is potential for Canadian oilsands shipments to push Saudi Arabian and North African oil out of refineries on the Texas and Louisiana coastlin

  3. rockman on Mon, 25th May 2015 2:40 pm 

    Back to same questions asked that has yet to be snswered: if the Gulf Coast refineries are oversupplied the one or both of the following conditions must exist. Some producers must have significantly reduced the flow rates of their existing wells and/or sending large volumes into storage. For a while a lot of oil had been going into storagr but the latest numbers show a net withdrawl as refiners pull in more inventory to build stocks for the increase in summer demand. In fact thrte has been revent speculation that the KSA has been drawing oil from storage because they actually lack the production capability. And while some NEW oil sands projects have been delayed and many rigs drilling the US shales have gone idle there has yet to be any meanimgful reduction from either source. IOW there has been, and continues to be, a ready buyer for every bbl produced.

    So how can there be an excess of supply if it’s all being consumed especially if storage is being drawn down?

  4. marmico on Mon, 25th May 2015 3:16 pm 

    In fact thrte [sic] has been revent [sic] speculation that the KSA has been drawing oil from storage because they actually lack the production capability

    Whatever you say, mudlogger. Shut in all U.S. production (no rail, truck, pipe, barge from domestic wellheads) and all U.S. imports (rail, pipe, ship from foreign wellheads) for 5.5 days and U.S. storage levels will be the same as last year.

  5. Nony on Mon, 25th May 2015 4:25 pm 

    The glut is over…

    Storage jams and very high contangos were always going to be a temporary event. That is now worked off.

  6. Nony on Mon, 25th May 2015 4:26 pm

  7. Nony on Mon, 25th May 2015 4:36 pm 

    now that the glut is over, will we no longer have Plant saying “glut, glut, gluttity glut”?

  8. Davy on Mon, 25th May 2015 4:40 pm 

    NOo, whatever you say monkey slapper. You know everyone listens when you speak especially your big brother Captain Marm. Captain, any luck finding Mobby Big Dick?

  9. shortonoil on Mon, 25th May 2015 4:56 pm 

    “The glut is going to go on’: Why oil prices won’t be bouncing back any time soon”

    We have a slightly different projection:

    “soon” – as in forever! It called the “end of the oil age” is not as far away as you might think!

  10. Bob Owens on Mon, 25th May 2015 5:18 pm 

    The Saudis rewrite the oil game with refining might. And what happens if ISIS rewrites the oil game by chopping off the heads of all those little Princes? The oil game could be over real quick for the world. Stay tuned to your TV.

  11. rockman on Tue, 26th May 2015 8:04 am 

    “The glut is going to go on’: Why oil prices won’t be bouncing back any time soon”. Bouncing back from the current level which are more than twice as high of the historical inflation adjusted price of oil? IOW no expectation of oil “bouncing back” to 3X the historical average and just continue to fester at 2X the average. Thank Dog for the glut…we is saved! LOL.

  12. tita on Tue, 26th May 2015 8:27 am 

    “So how can there be an excess of supply if it’s all being consumed especially if storage is being drawn down?”
    This is a really good question. We haven’t seen yet much change on the supply side (in facts, it’s higher than ever). The demand is growing, sure… but not exploding. Unlikely to have meet the supply yet. The glut is not over. Yet the storage inventories indicates less petroleum products.
    The withdrawal is usual at this time of the year. Refineries build up gasoline stocks (even if they are already high) for the driving season. At least for USA.
    Could it just be that the glut moved from too much oil to too much refined products? If KSA plan to be a major refiner, they still have to conquer market share. And we haven’t seen much refinery shutdown, but there is lots of talks about it (at least in Europe).

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