Aramco to start trading oil products to gain from refinery push

Company hopes to satisfy domestic demand by building refineries and adding units at existing plants to raise output
Aramco to start trading oil products to gain from refinery push
While much of the money went toward expanding oil-production capacity, Aramco is shifting focus to boost its refining and petrochemicals output
By Bloomberg
Wed 23 Feb 2011 08:13 PM

Saudi
Aramco, the world’s largest crude exporter, will start trading refined oil
products this year through a new unit that seeks to take advantage of the
company’s expanding refinery business.

The wholly
owned unit, Saudi Aramco Product Trading Co, will buy and sell refined fuels
internationally, Aramco said in a statement posted on its website late Tuesday.
Trading companies try to profit from short-term fluctuations in prices and
mismatches in supply and demand, a business new to Aramco, which mainly exports
crude and relies on long-term tenders.

“They have
made significant investments in downstream capacity over the last five years,
and this is a natural extension to maximize that value,” said Stephen Schork,
president of the Schork Group Inc in Villanova, Pennsylvania.

Saudi Arabia
holds the world’s largest oil reserves and is the biggest producer in the
Organization of Petroleum Exporting Countries. The kingdom imports gasoline,
diesel and other refined products because it lacks the capacity to meet rising
domestic demand, which Aramco hopes to satisfy by building refineries and
adding units at existing plants to raise output.

Aramco completed
a capital spending program of more than $100bn in 2009, Oil Minister Ali al Naimi
said in a speech in Singapore on November. While much of the money went toward
expanding oil-production capacity, Aramco is shifting focus to boost its
refining and petrochemicals output, Chief Executive Officer Khalid al Falih
said at a conference in Dubai in December.

The company
is investing about $40bn in three refining and petrochemical projects that
together will add more than 8 million metric tons of domestic production
capacity, al Falih said then.

The outlays
include about $20bn on a plant Aramco is building jointly with Dow Chemical Co
and as much as $8bn to expand Rabigh Refining and Petrochemicals Co, a venture
with Sumitomo Chemical Co, al Falih said. Aramco and Total SA are moving ahead
with a $12bn refinery at Jubail on the Arabian Gulf coast.

Aramco is
building other refineries at Yanbu on the Red Sea and Jazan in the country’s
southwest. Some of these plants will supply products such as fuel oil and
naphtha for export.

The company
sells naphtha and fuel oil on a term basis, but these sales have declined over
the years as domestic demand has grown. In 2009, Aramco exported 149 million
barrels of refined products and 2.06 billion barrels of crude, according to the
company’s annual review for that year.

“We hope to
better capture integration opportunities in our global system, and additionally
create more value for our expanding downstream business in the kingdom of Saudi
Arabia and overseas,” Khalid Al Buainain, Aramco’s senior vice president for
downstream operations, told customers at a reception at the IP Week conference
in London, according to the statement.

Said Al Hadrami
will be the president and CEO of Aramco Trading, as the new unit will be known.
Al Hadrami served most recently for four months as head of Saudi Aramco Total
Refining and Petrochemical Co, or Satorp, a 400,000 barrel-a-day refinery complex
Aramco is building with Total. He was a marketing manager for products at
Aramco’s headquarters in Dhahran for the last decade, after having worked for
the company in the late 1990s as a trading manager for oil products in London,
according to Bloomberg data.

Aramco plans
to expand petrochemical production along with its refineries to create more
valuable products from crude, Abdulaziz Al Judaimi, the head of its chemicals
business said in an interview in December. The company set up a new administration
area within its Refining and Marketing division last year to manage the
integration of its crude-processing and petrochemicals facilities.

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