Two state-of-the-art plants set to redefine Gulf kingdom's role as a crude exporter and OPEC kingpin
Saudi Arabia's tighter grip on the oil market from the desert derrick to the petrol pump, thanks to two new refineries, is redefining its role as a crude exporter and OPEC kingpin.
The two state-of-the-art plants will give it 800,000 barrels per day in refining capacity online in 2015, part of an ambitious downstream drive which will see its refining capacity rise to 8 million bpd in a decade.
While a lot of that will target its rapidly growing economy with the majority likely to be consumed domestically after 15-20 years, for now Riyadh is to become a major exporter of refined oil products such as gasoline, diesel and jet fuel.
"There is clearly a rebalancing in the kingdom as it is becoming a bigger player in the downstream. While Saudi may lose on crude exports, it will be gaining as product exports rise in the coming years," said Yasser Elguindi of Medley Advisors.
"So you are giving with the right hand even if you are taking away with left."
Crude exports from the OPEC heavyweight have been sliding in recent months to their lowest levels in almost three years.
State run Saudi Aramco and its subsidiaries own, or have equity interest in, domestic and international refineries with a total worldwide refining capacity of 4.9 million bpd, of which its equity share is 2.6 million bpd, making it the world's sixth-largest refiner.
In the kingdom a 400,000-bpd refinery, known as SATORP, in Jubail, reached full capacity in mid 2014 and another 400,000 bpd plant, the Yasref refinery in Yanbu, started trial runs in September with the first gasoil export cargo seen in December.
Aramco's CEO Khaled al-Falih said in May the company's downstream investments would exceed $100 billion over the next decade as high growth markets of the Far East and the Middle East "will make us one of the largest downstream players on the planet by volume."
The company has set up offices in Europe and Singapore to sell more oil products, industry trading sources say.
It has been exporting hundreds of thousands of tonnes of product monthly to Europe and Asia and snapped up spot deals through its trading arm to supply jet fuel to the United Arab Emirates, and gasoline to Kuwait andBahrain this year, the sources said.
"One thing I think is very sure you are going to see in the next 3-5 years is going to be a shift in Saudi exports away from crude and towards products," Bob McNally, a White House adviser to former President George W. Bush and now president of the Rapidan Group energy consultancy, said after a recent trip to Saudi Arabia.
Aramco Trading was set up in 2012 to trade and sell products directly to refiners. Other national oil companies, including China's Sinopec and CNPC, have significantly increased their trading arms too.
Traders are keeping an eye on Aramco as it starts direct sales of gasoil cargoes in Europe, reducing the role of middle men traders. Privately traders say if more companies followed Aramco's model it could squeeze them out of their niche markets.
"They are very active. They have a lot of volumes of gasoil, they are going to target end users, European customers and they will be moving cargoes that way. We have also seen them moving jet fuel this year," said one Gulf-based trader.
Saudi exported 6.663 million barrels of crude per day in August, down from 6.989 million bpd in July, according to the latest official data reported by the Joint Organisations Data Initiative (JODI). The August crude export figures were the lowest since March 2011.
At the same time, products exports in August were at record high at 1.023 million bpd, the highest since at least 2002, the start of JODI's records. That was up from 707,000 bpd a month earlier and compared to 621,000 bpd in August 2013.
That would take total oil exports from Saudi in August to 7.686 million bpd, close to its crude export levels last year.
The forecast shift to products exports could weaken its hand in the Organization for the Petroleum Exporting Countries (OPEC), some analysts say.
"By 2018-19 Saudi Arabia will be producing two thirds product and one third crude. That will have great implication for OPEC," Fereidun Fesharaki, chairman of energy consultant FGE, said on the sidelines of the Oil and Money conference in London.
"You can't be the king of crude if you're not the number one exporter."