Oil-rich Middle-East countries are willing to secure crude oil market in Asia, among other by participating in refinery construction here. Some countries have already been targeted for investment.
The Asian region has become a battlefield for Middle East countries to market their crude oil. With growing economy, wider area and larger population compared to other continents, energy needs in Asia has continued to rise. For oil and gas producing countries, such as those from the Middle East and Russia, it is very crucial to secure a fixed market here. Consumption in Asia is counted at 31.2 million barrels of oil per day, slightly larger than that in the United States of 31.1 million barrels.
One way to secure crude oil markets is to build refineries in these Asian countries. Some companies do this by purchasing shares of those already possessing operating refineries, others choose to build brand new refineries.
Amid the weakening world crude oil prices by more than a half in the past two years, oil-rich countries are vying for the potential market, with Asia at the forefront. For Saudi Arabia, the OPEC member with largest production, Asia is accounted for 70% of its total oil exports. The low oil price has put the Arab country in a better position to displace competitors having headaches due to the high production costs.
Saudi Arabia, as well as other producers, need the market for their oil. The certainty of the market will be more secured if they could possess refineries within the market areas. On the contrary, oil importing countries also require a steady supply. Therefore, oil suppliers are now in collaboration with refineries in order to secure the markets.
Saudi-based Saudi Aramco has already expanded its business to at least three Asian economic giants: China, South Korea and Japan. In South Korea, Saudi Aramco is the majority shareholder in a giant refinery located in the city of Ulsan. It is the third largest refinery in the world, with a production capacity of 884,000 barrels per day.
In early 2015, the company’s subsidiary Saudi Aramco Overseas (SAO) had increased its shareholding from 35% previously to 63.4%, after it purchased the shares of a local company Hanjin Energy. A street in the city of Ulsan has been named “Al Naimi Road”, as a homage to Ali Al Naimi, 80, former president of Saudi Aramco who served as Saudi’s oil minister since 1995.
Saudi Arabia is by far the largest oil supplier to South Korea, as it is also Korea’s largest partner in the field of construction. With the majority stake at South Korea’s largest refinery, Saudi Arabia would establish itself as the major supplier of crude oil to the East Asian country.
Further, Saudi Aramco has also poured funds into refinery business in Japan and China. In Japan, Saudi Aramco has partnered Shell Group to process crude oil at three locations under Showa Shell Sekiyu KK. Meanwhile in China, the Saudis has also built the Fujian refinery in order to secure crude oil market in the country.
The refinery, with a production capacity of 280,000 barrels per day, is located in a same complex with petrochemical plants built in cooperation with China Petroleum & Chemical Corp (Sinopec) and Exxon Mobile Corp. For Saudi Arabia, China is very important as it is the second largest oil consumer after the United States.
Aramco had also sought to develop a refinery with a capacity of 400,000 barrels per day in the province of Binh Dinh, Viet Nam. For this activity, Aramco worked alonghside PTT Plc., although up to now there has been no significant follow-up of the project.
Securing the markets in South Korea, China and Japan is very crucial for the Saudis, given the fact that other oil producing countries, such as Iran, Mexico and Russia are aylso eyeing these countries as crude oil markets. As of today, Russia remains the top crude oil supplier to China.
Aramco also expands its business wings to the United States, marked with the operation of three oil processing facilities in Texas and Louisiana since 1988. One of which is Motiva Enterprises LLC, one of the biggest oil refineries in the United States. With a majority shareholding position, the Saudi Arabians has secured a steadier market there. Within the first eight months of 2015, the oil purchase by the United States had reached 65 million barrels.
If Saudi Arabia targeted South Korea, China and Japan, the Kuwait through its Kuwait Petroleum International (KPI) has targeted the Vietnamese market with the construction of a refinery there. In the South East Asian country, the company has been involved in partnerships with Japanese refinery company, Idemitsu Kosan (35%), PetroVietnam (25.1%) and Mitsui Chemicals (4.7%), with an investment of US$ 9 billion.
Meanwhile, Oman is currently in possession of shares of an Indian refinery, Bharat Oman Refineries, built through cooperation between Bharat Petroleum Corporation Limited (BPCL) and Oman Oil Company SAOC, the Sultanate of Oman (OOC). In addition, Oman has also acquired some shares in a petrochemical plant in China.
Iran has also quickly become a newcomer to watch. Following the end of the US economic embargo, the Persian country has been fairly aggressive in seeking the markets for its crude oil. It has targeted the North Korean market for crude oil sales, either through China or by direct purchase.
