Saudi Aramco, the world’s wealthiest albeit state-owned oil company, continues to diversify in downstream investments. On Monday, the storied oil major said it planned to invest up to $1.6 bn for a nearly 20 percent stake in South Korean refiner Hyundai Oilbank. OilBank is South Korea’s smallest refiner by capacity. Saudi Aramco is already the biggest shareholder in South Korea’s third-largest refiner, S-Oil Corp, with a 63.41 percent stake.
Saudi Aramco plans to pay 1.8 trillion won for a stake of up to 19.9 percent of Hyundai Oilbank from Hyundai Heavy Industries Holdings, which now owns 91.13 percent of Hyundai Oilbank, a Reuters report said. Saudi Aramco plans to value Hyundai Oilbank at 10 trillion won, or 36,000 won per share, according to a Hyundai Heavy Industries Holdings statement. Reuters said that a person familiar with the matter claimed the company plans to offer a discount of 10 percent to Saudi Aramco in a block deal that will require board approval from both firms next month.
South Korean downstream potential
South Korea, along with China, has substantial market share in Asia and beyond for its finished petroleum products, producing light oil products and middle distillates such as diesel, gasoline, and jet fuel as a result of refinery upgrades in recent years. South Korea had almost 3.2 million b/d of crude oil distillation refining capacity at the end of 2017 and ranked sixth largest for refining capacity in the world, according to the US Energy Information Administration's (EIA) latest analysis of the country’s energy sector. Related: Is This A Buy Signal For Crude Oil Futures?
Saudi Aramco for its part has been keen on investing in downstream assets across Asia, the U.S. and Africa. It has also been planning to invest more to expand its nature gas footprint, especially in both the U.S. LNG sector as well as Russia’s LNG push, which could see possible conflicts of interest as Moscow and Washington jokey for geopolitical hegemony in the middle east and natural gas market share in Europe where Russia has a controversial decades-old gas monopoly dating back to the end of World War II.
Saudi Arabia’s downstream agenda
Saudi Aramco is also interested in diversifying more downstream ahead of its possible IPO, though the exact date of what would be the world’s largest IPO has been postponed and currently is still not certain. However, Saudi Energy Minister Khalid al-Falih said a few weeks ago that the oil giant will be listed by 2021. If so, this will once again (reminiscent of 2017-2018 when an IPO was pending) see competing bourses, like London, Hong Kong, Tokyo, New York and even Riyadh all compete for the chance to list or partiality list the historic IPO.
The listing of Saudi Aramco would also underpin the kingdom’s desire to pivot away from over-reliance on oil exports, and its plan to attract more direct foreign investment (FDI) as part of Saudi Crown Price Mohammed bin Salman’s push at reforming both the Saudi economy and even its cultural institutions. The Saudis hope to attract a $2 trillion valuation for Aramco though some outside analysts have pegged its value at half that amount. Related: Political Crisis In Venezuela To Reshape OPEC
In November, Saudi Aramco said that it had earmarked some $160 bn in its global downstream push. Chief executive Amin Nasser said at the time the kingdom planned to invest that amount in the next 10 years on gas developments and planned to also direct more feedstock into petrochemicals ahead of its acquisition of Saudi Basic Industries Corp (Sabic) and the construction of new processing facilities on the country’s east coast.
Mutually beneficial venture
Increased energy cooperation between South Korea, the world’s fifth-largest crude oil buyer, and Saudi Arabia, the world’s largest crude oil exporter and third largest producer after the U.S. and Russia, is a win-win development for both sides. It allows the Saudis to lock in more market share across Asia, even as it competes fiercely with Russia and until sanctions kicked in (Iran) for market share in China, the world’s top crude oil importer.
For South Korea, it guarantees the security of supply and likely favorable pricing as well as bringing in FDI to help its own downstream ambitions. Last year, South Korea imported 323.17 million barrels of crude from Saudi Arabia, around 885,408 bpd.
By Tim Daiss for Oilprice.com
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