Saudi Arabia’s state oil giant Aramco says that it doesn’t believe all the ‘peak oil demand hype’ and expects that its crude oil will be in high demand for decades to come.
While the Kingdom says that it’s working on the Vision 2030 strategy to diversify its economy away from oil, the Saudis and their oil firm are increasingly looking to lock in future oil demand in the refining and chemicals businesses in all major markets in the world to open new avenues of sales for their oil and to make sure that Saudi crude will have a market until the world needs oil.
Over the past few years, Saudi Aramco has been pursuing deals to take part in or to supply crude oil to China and India—the two largest oil demand growth centers and prized markets for any oil producer.
Now Aramco is setting its sights on Europe and the Mediterranean to more than triple its current oil supply to those markets as it aims to expand its downstream, refining, and marketing business and to make sure that it will have created demand for its oil on those markets in the long term.
Currently, Saudi Aramco supplies around 3 million barrels of oil to European markets monthly, and targets to boost this monthly supply to 10 million barrels within two years, Aramco’s senior vice president of Downstream, Abdulaziz Al-Judaimi, told Reuters in an interview this week.
“This means we have almost created a 300,000-bpd refining capacity in Europe,” Al-Judaimi said, noting that Aramco will be looking to seal swap deals to supply crude and to offtake refined products to market in Europe. Related: Energy Megaprojects In Jeopardy As Trade War Escalates
Aramco’s trading unit, Aramco Trading, is also aggressively expanding its trading business, rising from 300,000 bpd when it was set up in 2012, to 4.5 million bpd now. The Saudi giant aims to further boost the trading volume to 6 million bpd by the end of 2020, Al-Judaimi told Reuters.
Aramco and other national oil companies of the Middle East like the Abu Dhabi National Oil Company (ADNOC) aim to aggressively expand their trading businesses as they already rival international oil majors and the world’s top commodity trading houses. Vitol, for example, trades more than 7 million bpd of crude oil and refined products, with the crude trade at around 3.8 million bpd.
Saudi Aramco laid the groundwork for increased trading in Europe in 2017 by buying a stake in a Rotterdam oil terminal from commodity trader Gunvor.
Last month, Aramco Trading signed a supply deal with Poland’s leading oil refiner PKN Orlen in an agreement that “highlights Saudi Aramco’s commitment to the Polish market and its strategy to enhance the integration of its downstream network in Europe.”
“In addition, the agreement consolidates Saudi Aramco’s efforts to earmark new strategic outlets for crude oil enabling the company to accommodate a range of future market positions, as well as underpinning an optimal balance of geographic exposure between Asia, Europe, and North America,” the Saudi oil giant said in April.
Aramco already said last year that it aims to increase its refining capacity from 5 million bpd now to 8 million bpd-10 million bpd, and to double its petrochemicals production by 2030 in its pursuit of securing more downstream markets for its crude oil. Related: The Battle For Control Over Iraq’s Oil
Earlier this year, Aramco signed an agreement to buy 9 percent in Zhejiang Petrochemical’s 800,000-bpd integrated refinery and petrochemical complex in China. Saudi Aramco is also said to be in “serious discussions” to buy up to 25 percent of the refining and petrochemicals businesses of India’s largest company, Reliance Industries.
During a visit to China in March for the Huajin Aramco Petrochemical joint venture, Aramco’s president and CEO Amin Nasser said that the JV project “aligns perfectly with our own downstream strategy of becoming a global leader in refining and marketing, base lube oils, and chemicals. And it also aligns with forecasts that petrochemicals are “set to account for more than a third of the growth in oil demand to 2030, and nearly half to 2050.”
The Saudi state firm doesn’t see peak oil demand happening any time soon, and is confident it is the oil producer best equipped to continue meeting that demand, thanks to its very low production costs.
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In a rare strongly worded speech at the International Petroleum Week in London earlier this year, Nasser rebuked all those who predict the demise of the oil industry in the near future, saying that views that the world will soon run on anything but oil “are not based on logic and facts, and are formed mostly in response to pressure and hype.”
Aramco believes that the world will continue to need a lot of oil for decades to come and looks to lock in as much global demand for Saudi oil as possible.
By Tsvetana Paraskova for Oilprice.com
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Against this background, Saudi Aramco is concentrating its efforts on the two countries with the largest demand growth, namely China and India who between them account for more than 19% of global oil demand.
China is of particular interest to Saudi Aramco as the world’s biggest oil importer. Saudi Arabia lost market share there to Russia which has emerged as the top oil supplier to China. Saudi Arabia could even lose more of its market share if it doesn’t accede to China’s demand that it accepts the petro-yuan as payment for Chinese oil imports from Saudi Arabia.
Saudi Arabia will have to also concentrate on the European market where it also lost market share to Russia and Iraq in recent times. The Saudis aim to raise their exports to Europe from 100,000 barrels a day (b/d) to 330,000 b/d.
And to enhance its trading arm, Saudi Aramco is buying refineries and petrochemical assets around the world. This guarantees a continuous demand all over the world for Saudi oil well into the future.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London