Despite the fact that Saudi Aramco made a net profit of US$33.8 billion in the first half of 2017-more than the net incomes of all of the five Big Oil firms combined-the Saudi oil giant significantly lagged the largest listed integrated oil companies in terms of earnings from refining and chemicals-an area in which Aramco is expanding.
According to Bloomberg News, whose reporters have reviewed the H1 2017 accounts of Aramco showing that this is the world's most profitable company, the Saudi firm made almost all its profits from exploration and production, while the downstream business earned just US$842 million in net income. This compares with a loss of US$484 million for the first half of 2016.
Stronger and broader downstream businesses typically save the integrated oil groups when their upstream divisions suffer from low oil prices. Cheaper crude oil makes refining margins higher and helped Big Oil to cushion part of the blow from the low oil prices after the 2014 crash.
According to the financials that Bloomberg reported, Aramco's case was not such.
While the Saudi oil firm generated less than US$1 billion in refining and chemicals profits in H1 2017, Shell's downstream profit was US$5.018 billion for the same period, up from US$3.826 billion for H1 2016. Another oil major, Exxon, reported downstream earnings of US$2.5 billion and chemical earnings of US$2.2 billion for the first half of 2017.
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Aramco's financials didn't offer explanation as to the reasons for the small profit in the downstream business, but state firms who sell refined oil products at below-market value on the domestic market often lose money, according to Bloomberg.
Directly or through joint ventures, Saudi Aramco owns plants capable of processing 5.3 million bpd in Saudi Arabia, the United States, Japan, South Korea, and China, including the biggest refinery in the United States; the Port Arthur refinery in Texas. Aramco directly controls 3.1 million bpd capacity, Bloomberg quoted a bond prospectus for the company as saying. On the basis of this number, Saudi Aramco is the world's third-biggest refiner behind Exxon and China's Sinopec.
Aramco says that it is pursuing a strategy to become "the world's leading integrated energy and chemicals company" by 2020, and is investing in refining, chemicals, base oils, marketing, and power generation in order to create additional value while diversifying risk.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More