KSA Focuses on Refined Oil Exports

by shariff mohammed | Feb 06, 2018

Saudi Arabia Focuses on Refined Oil Exports

Saudi Arabia is concentrating on the development of its refinery sector to become a key supplier of refined oil to the international markets with the aim of weaning the Kingdom off its oil-based economy, an ambitious target set under the Saudi Vision 2030. Thus the Kingdom has embarked on building new refineries and expansions of other existing plants to raise its share of domestic refining capacity to over 3.3 million bpd by 2020 from the current capacity of nearly 2.0 million bpd, writes Shamsul Huda.


The total in-Kingdom oil refining capacity stood at 2.9 million bpd at the end of 2016, according to sources from Saudi Aramco. The national company fully owns four refineries—Ras Tanura, Riyadh, Jeddah and Yanbu. It has also five joint venture refineries—Petro Rabigh, SAMREF-Yanbu, YASREF-Yanbu, SASREF-Jubail and SATORP-Jubail in the Kingdom. In addition, Saudi Aramco has at least four joint venture oil refineries worldwide. They include Motiva-USA, S-OIL-South Korea, Showa Shell-Japan and FREF-China. Total refining capacity of these plants reached 2.5 million bpd in 2016, of which Saudi Aramco’s share was estimated at 1.1 million bpd.

Saudi Arabia’s Domestic Oil Refinery Capacity: 2016

(thousands of bpd)

Name of Refineries

Total Capacity

Saudi Aramco Ownership

Saudi Aramco Share of Capacity

RasTanura

550

100%

550

Riyadh

126

100%

126

Jeddah

77

100%

77

Yanbu

243

100%

243

Petro Rabigh

400

37.5%

150

SAMREF—Yanbu

400

50%

200

YASREF-Yanbu

400

62.5%

250

SASREF-Jubail

305

50%

153

SATORP-Jubail

400

62.5%

250

Total

2,901

--

1,999

Source: Saudi Aramco

 

 

 

The new oil refinery being built in Jazan is nearing completion and is expected to be commissioned by the next year.  Construction of 400,000 bpd Saudi Aramco-owned Jazan Refinery reached about 70% completion, confirmed President and CEO of the national company after his recent tour to the complex. The refinery and terminal facilities are the industrial heart of the government’s greater Jazan Economic City project, and part of a broad plan to drive sustainable economic development in the region.

Saudi Aramco’s International Oil Refinery Capacity: 2016

(thousands of bpd)

Name of Refineries

Total Capacity

Saudi Aramco Ownership

Saudi Aramco Share of Capacity

Motiva-USA

1,070

50%

535

S-OIL-South Korea

669

63.4%

424

Showa Shell-Japan

445

14.96%

67

FREP-China

280

25%

70

Total

2,464

--

1,096

Aramco-owned Refineries

Among the domestic refining plants, Ras Tanura is the largest and oldest with its current distillation capacity standing at 550,000 barrels per day (bpd). The refinery began operations in 1945 with an initial production capacity of over 60,000bpd. It has since then undergone a number of expansions, which added new equipment such as fluid hydroformer for high-octane gasoline production (commissioned in 1955), a diesel desulphurisation unit (commissioned in 1957), a special products blending facility, and a refrigerated liquefied petroleum gas (LPG) plant. It is located near the industrial port city of Jubail. Owned and operated by Saudi Aramco, the majority of the products produced by the refinery are supplied to Dhahran bulk plant for domestic use, and the remaining is exported.

The 77,000 barrel per day Jeddah crude oil distillation facility which started operations in 1967 is now facing closure because of age and environmental concerns.  Jeddah’s growth had left the refinery in the middle of the city, which created environmental issues that contributed to a likely decision to close it. The refinery serves much of the country’s western region and its closure would increase demand at other Saudi facilities. It produces liquefied petroleum gas, gasoline, diesel, asphalt and jet fuel, and exports naphtha. Saudi Aramco was originally considering whether to close it in 2018 but now looks likely to postpone the closure to as late as 2022 because of growing domestic demand for refined oil products, according to published reports.

Riyadh Refinery was commissioned in 1981. It has a current capacity of 126,000 bpd. It produces gasoline, diesel, asphalt and sulfur; and its clean transportation fuel project is to reduce the sulfur content of gasoline and diesel produced by the refinery from actual 330 parts per million (ppm) to 10 ppm, and to reduce the level of benzene in gasoline in order to meet the new international standards.

Yanbu Refinery is the newest oil distillation facility in the Kingdom. Saudi Aramco constructed the 400,000 bpd full-conversion refinery at Yanbu in 2016. The refinery was estimated to cost $12 billion and is spread over 5.2 million square metres.

Joint Ventures

SAMREF-Yanbu is the first oil distillation joint venture facility in the Kingdom. It was formed in 1981as an equally owned joint venture between Saudi Aramco and Mobil Yanbu Refining Company Inc., a wholly owned subsidiary of Exxon Mobil Corporation. The design capacity of SAMREF was 263,000 barrels per day of Arab Light Crude, but through a continuous improvement of its facilities, it now processes about 402,000 barrels per day.

SASREF-Jubail is another oldest joint venture refinery in the Kingdom established in 1985 between Saudi Aramco and Shell, two of the leading oil and gas companies in the world. Shell had brought a number of state of the art refining technologies into SASREF covering hydrocracking, distillation, hydrogen manufacturing and others. This leading edge technology further boosts SASREF's international competitiveness. Its production capacity is now 305,000 barrels per day (b/d).

Rabigh Refining & Petrochemical Co., Petro Rabigh, is a joint venture between Saudi Aramco and Sumitomo Chemical. It was set up in 2005. The plant has been producing 18.4 million tons per annum (mtpa) of petroleum-based products and 2.4 mtpa of ethylene and propylene-based derivatives. Petro Rabigh II is an expansion project. It is scheduled to be in full production by end of 2017.

The Yanbu Aramco Sinopec Refining Company Ltd., YASREF, is a joint venture between Saudi Aramco and China Petrochemical Corporation (Sinopec). It became operational in 2014. It uses 400,000 barrels per day (bpd) of Arabian heavy crude oil to produce premium transportation fuels, as well as high-value refined products for both international and domestic markets. YASREF possesses the location advantage to effectively and efficiently supply both international and domestic markets.

 

The Saudi Aramco Total Refining and Petrochemical Co. (SATORP) is a major expansion for Saudi Aramco in downstream capabilities. With the capacity to process 400,000 barrels per day (bpd) of Arabian Heavy crude oil, SATORP is part of a broader package of investments that transform Saudi Aramco from a traditional oil and gas company into a global leader in energy and petrochemicals. The refinery went on full operations in 2014.

Overseas Ventures

Saudi Aramco has partnerships in refining and marketing ventures mainly in China, Japan, South Korea and US and is set to make its presence felt further in Indonesia, Malaysia, India and other countries . In 2016, the national company continued to pursue and evaluate international opportunities to expand its refining and chemicals capability for greater downstream integration to propel additional value creation.

In a latest deal, Saudi Aramco took control of the Port Arthur refinery in Texas which is North America’s largest and world’s sixth largest oil refinery. Aramco took on 100 percent ownership of the port, cementing its access to the lucrative U.S. energy market. According to Saudi Aramco, a nonbinding Letter of Intent was signed by its Houston-based indirect subsidiary, Saudi Refining Inc., and an affiliate of Shell Oil to end the Motiva Enterprises LLC refining and marketing joint venture formed by the parties in 1998. 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.

In another recent development during the historic visit of the Saudi King Salman Bin Abdulaziz to Kuala Lumpur early this year, Saudi Aramco signed a share purchasing agreement with Malaysia’s Petroliam Nasional Bhd (Petronas) allowing the former to acquire a 50 percent equity in the Petronas Refinery and Petrochemical Integrated Development’s (RAPID) refinery and cracker assets. The agreement will strengthen Saudi Aramco’s position as the leading supplier of petroleum feedstock to Malaysia and Southeast Asia. Under the partnership, Saudi Aramco will meet most of the crude feedstock requirements of the refinery, with natural gas, power and other utilities supplied by Petronas. With capacity to refine 300,000 barrels of crude per day, RAPID’s refinery will produce a host of refined petroleum products, including gasoline and diesel which meets Euro 5 fuel specifications; as well as feedstock for its integrated petrochemical complex producing 3.5 million tons per annum of products. 

Meanwhile, during the recent landmark visit of Saudi King Salman Bin Abdulaziz to Jakarta, Saudi Aramco inked an agreement with Indonesia’s Pertamina to expand an oil refinery in Indonesia. Saudi Aramco has been selected as the strategic partner for the Refinery Development Master Plan Project of Pertamina. Last year, the company signed a nonbinding Joint Venture Development Agreement to enable further progress for the joint ownership, upgrade, and operation of Pertamina’s Cilacap Refinery in Central Java. Under the agreement, the refinery’s capacity will be expanded to 400,000 bpd and designed to process Arabian crude oil to produce refined products that meet Euro V specifications, basic petrochemicals, and Group II base oil for lubricants. Saudi Aramco will own a 45% interest of the venture.

In South Korea, Saudi Aramco holds a majority equity interest in S-Oil, one of the country’s leading refiners. Two projects are underway to enhance its refinery’s competitiveness, create a more diversified portfolio, and improve profitability. The first project involves upgrading low-value residue to high-value olefin and gasoline products. The second project involves new facilities to produce polypropylene and propylene oxide, and recover ethylene.

In China, Saudi Arabia’s crude oil exports account for nearly 10% of the country’s demand. Saudi Aramco’s portfolio of downstream assets in China is designed to benefit energy and feedstock consumers and maximize returns on the Kingdom’s hydrocarbon resources. In the Fujian Province, Aramco has an equity ownership in a joint venture called the Fujian Refining and Petrochemical Company Limited (FREP), a joint venture with ExxonMobil, China Petroleum and Petrochemical Company Limited (Sinopec) and the Fujian provincial government.

In the Netherlands, Saudi Aramco officially launched Arlanxeo, its joint venture with German specialty chemicals company LANXESS, a milestone on its journey to increase the participation in the chemicals sector. Arlanxeo is a world leader in the development, production, marketing, sale, and distribution of synthetic rubber and elastomers used in the global tire industry, auto parts manufacturing, construction, and oil and gas industries.

GCC Expansions

Plans for refinery expansions across the GCC countries are entering a critical phase. The region is leading the drive in the Middle East with 1.5m b/d of new refining capacity expected online by 2021, according to a study by the Arab Petroleum Investments Corporation (APICORP). Substantial investments in the refining sector were made to tackle increasing domestic demand and diversify away from crude to more specialized product exports. At the same time, these refinery additions are changing global trade flows, with the region exporting more refined products, particularly to Europe.

 

The GCC refining sector has seen tremendous growth over the past few years, mainly driven by significant government investments during a period of high oil prices. Governments have prioritized the expansion of the downstream sector for several reasons. First, the region has witnessed rapidly rising demand for gasoline and diesel in the transportation sector, as well as diesel and fuel oil in the power sectors of Saudi Arabia and Kuwait. Second, governments are seeking to diversify away from crude exports towards more specialized refined products. Third, they are also committing to create more value in their economies by integrating the crude, refining and petrochemical industries.

 

The last few years saw the expansion of refining capacity due to the commissioning of several projects. The completion of the two Saudi refineries – YASREF and SATORP - in 2014 and the expansion of the Ruwais facility in the UAE added approximately 1.2m b/d of new and cleaner refining capacity. Built with an eye on supplying the growing Asian market, these new refineries have contributed to turning the GCC countries into a net exporter of refined products in 2016, particularly in the diesel segment.

 

The latest additions to the refining sector in the region have concentrated on condensate splitters. However, in the medium term, GCC countries are expected to add further capacity by 2021, adding up to an impressive 1.5m b/d. The new capacity will be dominated by the two major additions in Saudi Arabia and Kuwait, as well as clean fuel projects in the region. They will adhere to stringent European requirements for cleaner fuels, and will thus provide GCC refineries with a competitive edge in a tough market.

 

Of the recent 1.2m b/d of additional capacity, diesel represents over half, while gasoline and jet fuel output stood at around 350k b/d and 140k b/d. These additions have had a measurable impact on trade flows, particularly in the diesel market. Prior to the recent ramp ups, Kuwait and Bahrain had been the only two net diesel exporters in the region. As for gasoline, refineries in GCC countries were built to meet domestic demand.

 

As a result, Saudi Arabia has become a net exporter of diesel, with cargos competing in the European market. Thanks to the GCC region's geographical position between Europe and Asia, its refineries have turned into competitors to their Asian counterparts, especially in the overcrowded diesel segment. For example, Saudi Arabia had historically been a net importer until 2014; however, by 2016, the country had evolved into a net exporter of over 300k b/d. This surge in diesel exports is attributed to the mainly diesel-oriented refineries that were recently built and geared towards increasing production in anticipation of rising demand in Asia, particularly China. As for gasoline, Saudi Arabia became a marginal net exporter of gasoline in 2016 after historically having been a net importer. In 2016, the Kingdom exported 5k b/d, coming from an average net import level of 55k b/d and 60k b/d in 2015 and 2014.

The impact of this is mostly felt in the Asia Pacific region and in India, which used to be major exporters of refined products - and particularly diesel - to the Middle East and Europe. Saudi exports in particular have a competitive edge in ultra-low sulphur diesel which meets European standards, while also offering less transportation cost and travel time than their Asian counterparts.

 

With current average price of gasoline at $ 0.24 in the Kingdom as against world’s average at $1.09, Saudi government is considering to hike prices to be roughly in line with varying international prices. This could result of an increase of 80% for octane-91 grade gas, from 0.75 riyals per litre to 1.35 riyals per litre. Under the plans, Saudi Arabia is likely to adopt the same approach as the UAE by linking car fuel prices to international rates, according to Bloomberg.

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 


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