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Page added on May 3, 2017

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Saudi Arabia Controls the Largest Oil Refinery in North America

Public Policy

he Port Arthur refinery in Texas is North America’s largest oil refinery, and as of this week Saudi Arabia controls all of it. With the stroke of a proverbial pen, Saudi’s state-owned oil giant Aramco took on 100 percent ownership of the port, cementing its access to the lucrative U.S. energy market at a critical time.

Industry experts say this week’s deal is Aramco’s latest power play before its highly anticipated IPO next year. But it also unveils a wider Aramco strategy no other state-owned oil giant has pursued yet: buying up downstream refineries worldwide to ensure steady consumer access regardless of prices.

In the latest deal, finalized Monday, Aramco gained full ownership of Port Arthur and 24 distribution terminals in a boon to investors eyeing the IPO. Before that, Aramco had a 50-50 stake in the refinery with Anglo-Dutch oil giant Royal Dutch Shell. Port Arthur, referred to as the “crown jewel” of U.S. refinery infrastructure, can process 600,000 barrels of oil a day.

Aramco is slated to go public next year and the government is hoping the IPO can net $2 trillion — the largest IPO in history by a long shot — to score some sorely needed cash. “This Port Arthur deal is about Saudis getting prepared to try and value Aramco at the highest amount they can before they go public,” said Andrew Holland, an energy expert at Washington-based think tank American Security Project.

Saudi Arabia and other petro-states are feeling the pain from record-low oil prices, squeezing their steady streams of government revenue. The U.S. market is one of the few bright spots for Saudi Arabia, the United States’ second-largest oil supplier after Canada. The Gulf kingdom exported 1.3 million barrels of crude a day to the United States in February, up 32 percent from last year.

This isn’t the first downstream refinery Aramco bought, and it won’t be the last. Aramco also bought up refineries in China, Japan, Indonesia, South Korea, and is exploring pricey new ventures in Malaysia and India.

That’s all part of a grand plan, said Jean-Francois Seznec, a 25-year energy industry veteran now with Georgetown University. As the sole state-owned oil company in the world’s largest petro-state, Aramco has a firm grip on its upstream business, so now it’s locking down control of downstream markets, he told FP. “They’re creating a baseload of demand for their crude production so Saudi oil will always have an outlet to sell in regardless of prices,” he said. “I think it’s a superb strategy…no other national companies appear to have the same strategy.”

A Saudi state company controlling the largest U.S. refinery may sound like a national security headache, but experts say it’s not. The problem rather is one of perception.

“The optics aren’t good,” said Bud Coote, a former energy analyst for the CIA and now with Washington-based think tank the Atlantic Council. “But the [oil] industry’s globalization and interdependence may quell any alarm,” he said, adding Aramco likely wouldn’t risk any access to U.S. markets for Riyadh’s political gains. And U.S. relations with Saudi Arabia are much better than with other petro-states around the world, such as Iran, Russia, or Venezuela.

Unlike Russia’s state-owned energy companies, which the Kremlin wields as a blunt geopolitical weapon against energy hungry neighbors, Aramco has never put politics above commercial interests, Holland said. And the Saudi Royal family, which controls all aspects of the country’s government, is conspicuously absent from Aramco’s leadership.

“There is not a single member of the royal family in Saudi Aramco, not one,” Seznec said.

“Not even on board of directors.”

If there are concerns over the deal, however, they can be addressed through the Committee on Foreign Investment in the United States (CFIUS), an interagency panel that has the power to halt foreign transactions that threaten national security.

U.S. President Donald Trump appears to have backed off repeated campaign promises to wean the United States off foreign energy. In campaign speeches, Trump vowed to gain independence from “our foes and the oil cartels” (presumably referring to the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is a member), and threatened to curb Saudi crude imports if Riyadh didn’t pitch in more troops to the fight against ISIS.

Trump has since backed away from those statements, and U.S.-Saudi relations appear to be flourishing based on recent bilateral meetings. So, at least for now, the latest Aramco deal may be a win-win situation for Washington and Riyadh.

Foreign Policy



14 Comments on "Saudi Arabia Controls the Largest Oil Refinery in North America"

  1. Rockman on Wed, 3rd May 2017 12:39 pm 

    “..a wider Aramco strategy no other state-owned oil giant has pursued yet: buying up downstream refineries worldwide”. China has been buying into refineries around the world for almost a decade. And that includes a interest in a rerfinery in Saudi Arabia with a capapacity about the same size. As far as foreigners controlling Motiva nothing has changed: instead of being owned by two foreign companies it’s now owned by just one.

    And while Motiva’s capacity is large it’s still half that of the world’s largest refinery. More important Motiva controls a 0.7% of the global refining capacity. And while it does represent 3.2% of US refining capacity the US refinery industry already exports more then 7X the amount of refinery products that Motiva could export even at 100%. And what it matters: the US doesn’t have a refining industry per se: the world has a refinery industry much of which is located in the USA.

    It’s actually more the case of the US having the KSA by the balls then vice versa. It can’t move the refinery: it remains in the US no matter what happens politically in the future. As far as why invest in the US: where would it be safer (physically and politically to invest in

  2. Dave thompson on Wed, 3rd May 2017 12:48 pm 

    The owners will own. The owners hold no alligence to any country. The owners only bow and cow tow to the language of more profit more privileged few. The owners own it all.

  3. onlooker on Wed, 3rd May 2017 1:01 pm 

    Absolutely Dave. And we the masses in the rich countries have been following them right to the precipice. Because we got a slice of the pie as well

  4. Dave thompson on Wed, 3rd May 2017 2:43 pm 

    We the masses will only reap but the crumbs fallen away by the by.

  5. Harquebus on Wed, 3rd May 2017 6:06 pm 

    “The rich don`t give a fuck about you… they want it all and they are gonna get it!” — George Carlin

  6. Sissyfuss on Wed, 3rd May 2017 10:17 pm 

    Is that what you call America First, Trashident Plump?

  7. makati1 on Wed, 3rd May 2017 10:56 pm 

    Rockman, the refinery is only a piece of worthless junk when the SHTF. Wait and see.

    The U$ is NOT the best place to invest. That too is going to become very painfully obvious soon.

  8. bobinget on Thu, 4th May 2017 10:33 am 

    Hard to overlook. Chinese and Saudi refineries act as a hedge against lower then ‘normal’ oil pricing.

    Makati, others, lay off the word ‘very’.

  9. Ghung on Thu, 4th May 2017 11:01 am 

    I view this in the same light that I view the Chinese owning the largest meat processing and packing facility in the US, except that, if I don’t like it, I can avoid buying Smithfield products (including Gwaltney, Eckrich, Aberdeen, John Morrell, etc). I have no way of knowing where products from this refinery end up.

  10. Anonymouse on Thu, 4th May 2017 1:49 pm 

    So the ‘sauds’ now own a refinery somewhere in the phewnited states, big deal. No idea what you mericans are so worried about. The us controls ‘saudi’ Arabia. The ‘sauds’ have in fact, been recycling their printed-from-air petro-dollars to buy both real and’fake’ uS assets (t-bills etc), for DECADES. There is nothing ‘new’ here. In fact, the ‘sauds’ have been one of amerikas most loyal satraps, they would never act against their owners interests. That is the deal that was struck, they recycle their petro-dollars back into uS t-bills and other assets, buy crappy overpiced uS weapons like there is no tommorow, support uS efforts to destabilize the entire ME. Everything is working as intended. Besides, in a couple of years, they will likely sell that refinery back to the uS, or maybe the chines, who knows. And during that entire time, no one will notice any difference. Maybe a sign at that refinery gate will change slightly, that is about the extent of it.

    Here is it broken down

    The uS controls ‘saudi’ Arabia
    And Isreal controls the uS.

    Working as intended.

  11. rockman on Fri, 5th May 2017 5:26 am 

    Mak – “The U$ is NOT the best place to invest. That too is going to become very painfully obvious soon.” Just wait until ISIS gets its head out of its ass and starts blowing up refineries (which isn’t that difficult given they do it often enough on their own. LOL) instead of food markets and police stations. Then it will realize it can produce a greater impact the infidels going that route. As that develops US refineries will become more valuable.

    And if that trend doesn’t develop? The US is the largest source of refined products in the world. It also can afford to consume an extremely disproportionate share of that global consumption. Additionally about half the current US oil imports are refined and re-exported. As PO eventually reduces the global oil supply where would you rather own a refinery: in a country with a huge consumer base that can better afford expensive products the the rest of the world? In a country with the largest oil import and refining infrastructure on the planet? In a country physically isolated from most of a world with not only a relatively stable political system as well as a strong military capable of defending its infrastructure? In a country populated by a people with a well documented history of killing any f*cking foreigner who gets between us and “our oil” that happens tyo sit under their land? LOL.

    IOW which country will have the longest lasting and most profitable refining industry as less oil is produced globally? Hell, the way events are developing in the Middle East China might be wishing it had invested in Motiva then in the Saudi refinery with the same capacity. LOL.

    As they say: when you and your friend are be chased by a bear how fast your friend runs is more important the how fast the bear runs. IOW when “bear” (diminished global resources) starts attacking with a vengeance what’s more important is how much faster a country can run then the other countries and not the “bear”. IOW in a world where no investments will be untouched there are those countries that will suffer more the others.

  12. Cloggie on Fri, 5th May 2017 5:44 am 

    America won’t be brought down by ISIS, dream on makati. ISIS is in the process of being brought down itself.

    Is the American middle class really in that bad shape?

    It is fairly easy to bury the truth under a pile of statistics. Here an opinion that opines that inflation has always been calculated wrong. Factors like that products have a much longer life span today, so you get more product for your buck and that as a consequence real wage increase between 1975 and 2016 was 50%, not flat. Today more people have cars, more household appliances, electronic devices, larger homes.

    http://daskapital.nl/2017/05/gaat_het_eigenlijk_wel_zo_slec.html

  13. Davy on Fri, 5th May 2017 7:04 am 

    Sound wisdom Rock:
    “As they say: when you and your friend are be chased by a bear how fast your friend runs is more important the how fast the bear runs. IOW when “bear” (diminished global resources) starts attacking with a vengeance what’s more important is how much faster a country can run then the other countries and not the “bear”. IOW in a world where no investments will be untouched there are those countries that will suffer more the others.”

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