Aramco agreement with Petronas gives Saudi Arabia the largest share in Asian markets

Reuters said that Saudi Arabia – the largest oil exporter in the world – cut a long way in the race for market share in Asia after it agreed some days ago to inject seven billion dollars in a petrochemical complex and refinery in Malaysia.


The investment from giant Saudi Aramco in the integrated development of the refining and petrochemical project (Rapid) will insure the supply of Saudi crude over at least two decades to Malaysia and will strengthen the company’s portfolio in downstream activities. A sharp competition currently increased among producers in Asia, including Russia and others from the Middle East, such as Iraq, Kuwait and Iran. Demand growth in Asia provides rescue for production, especially after the producers especially Saudi Arabia has lost market share in the United States due to the increase of shale oil production there.


Buying a stake in a large oil refinery with the promise of providing them with crude is a tested tactic proved successful and has been used by producers to ensure customers. Russia – largest producer of crude in the world – bought the large stake in India’s Essar refinery and plans to build another refinery in Indonesia with the the governmental company “Pertamina”


Under the deal with Malaysia’s Petronas, Aramco will export up to 70% of crude oil quantities needed to feed Rapid project, including a refinery of 300 thousand barrels per day and other petrochemical plants. Aramco has also strengthened its ties with Indonesia, the largest economy in Southeast Asia, through supplying 270 thousand barrels of crude a day to a refinery owned by Pertamina “Cilacap” after the acquisition of a stake of 45 percent. 


Saudi Arabia’s energy minister “Khaled Faleh” said to Saudi TV that the agreement “provides the Kingdom with sustained demand for Saudi oil and will enable the two countries to add value to this oil through the manufacture of high quality products, whether fuel or petrochemicals to the market of Malaysia and neighboring markets.  Reuters added that Saudi Arabia exported 7 million b/d in 2016 to the six largest buyers of oil in Asia, including China, India, Japan, South Korea, Taiwan and Singapore from the total imports amounted to 31 million b/d.  According to the Malaysian agreement Saudi Aramco will pay 25% of the project cost and will ensure supplying 50% of its feedstock, and this will strengthen the initial public offering to sell 5% of Aramco, which is currently estimated at more than $ 2 trillion Saudi Aramco has some other refinery projects in South Korea, Japan and China. It also has investments with Exxon Mobil, Total and Sinopec. Saudi Aramco is expected to perform more similar transactions to sell more crude to China and Asia and to feel satisfied towards the future of its huge oil reserves.