At a time when U.S. and Saudi relations are strained, the Saudi Arabian Oil Company is reportedly leading in a race to buy a large refinery in Houston.
Certainly, politics and geopolitics cannot stay out of such move by the Saudi company, but it seems that Aramco has solid business reasons, as well as political ones, to bid for the Houston Refinery, which Dutch chemicals company LyondellBasell Industries NV (NYSE:LYB) is reportedly putting up for sale.
Last month, Lyondell told employees in an email that the Houston refinery was up for sale, Reuters reported, quoting sources who had seen the email. Four possible bidders had inquired after the sale: Aramco, Texas-based Valero Energy Corporation (NYSE:VLO), and Canadian groups Cenovus Energy Inc (NYSE:CVE) and Suncor Energy Inc (NYSE:SU).
That was before the U.S. House of Representatives passed on September 9 the ‘Justice Against Sponsors of Terrorism Act’, which would potentially allow families of victims of the 9/11 attacks to sue Saudi Arabia.
The White House said on September 12 that President Barack Obama intended to veto that legislation due to concerns that it would have an impact on the U.S. relations with every country in the world, and negatively affect the U.S. national security and troops.
Earlier this year, the Saudis had threatened to sell US$750 billion worth of U.S. assets should the U.S. pass that legislation, but analysts posited that the oil-rich kingdom would not do so.
Given the political backdrop and the upcoming U.S. Presidential election, Aramco’s bid for the Houston Refinery may be a little surprising, but it signals that Saudis still consider the U.S. a political and business ally, writes Clifford Kraus for The New York Times, citing experts on Middle East and energy affairs. Related: IEA: Oil Demand Growth To Slow This Year
Along with the political hues, Aramco’s interest in Lyondell’s refinery has makes sense from a business point of view.
Since the oil price crash began in 2014, Saudi Arabia has seen its oil revenues dropping and budget gap widening, with its budget deficit reaching 16 percent of GDP last year. Although signs of stabilization have recently emerged, the kingdom is still walking the first miles on a long road to diversify revenue sources away from crude oil.
In this scenario, Aramco may be unwilling to give up market shares of its downstream business in the U.S. after it transfers two Louisiana refineries to Royal Dutch Shell (NYSE:RDS.A), following the preliminary agreement from earlier this year to split the assets of their 50/50 refining and marketing joint venture Motiva Enterprises. And Lyondell’s Houston Refinery may be just the asset that Aramco needs to offset, at least partially, future lower production capacity when it transfers the sole ownership of the Louisiana refineries to Shell.
Under the terms of the letter of intent with the Anglo-Dutch oil major, Aramco will keep sole ownership of the Port Arthur refinery in Texas, North America’s largest, with a capacity of processing 600,000 bpd of crude. The Saudi company is also keeping the Motiva name. Shell, on the other hand, will become sole owner of the Convent and Norco refineries in Louisiana, which have crude capacity of 230,000 bpd and 235,000 bpd, respectively. On the other hand, LyondellBasell’s Houston Refinery has a capacity of 268,000 bpd of crude.
Aramco is in the lead to buy the Houston Refinery, which is valued at around US$1.5 billion, Reuters reported last week.
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Time will tell whether geopolitical power plays and business reasons will help the Saudi attempt to own another large refinery in the U.S. Gulf Coast.
By Tsvetana Paraskova for Oilprice.com
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