GCC petroleum investments growing in Asia
Beirut - Rapid and sustained economic growth in Asia has raised Gulf Cooperation Council (GCC) countries’ interest in expanding trade with emerging Asian markets. GCC members have been looking for new markets to substitute the decreasing exports to countries of the Organisation for Economic Co-operation and Development (OECD), particularly in Europe.
In 2013, GCC crude oil shipments to European states and North America decreased to less than 20% of their total exports, while 70% of GCC crude oil exports moved to Asian markets. By 2015, China was importing approximately 8 million barrels per day (bpd). It is the largest crude oil importer globally. In 2015, Saudi Arabia provided 10% of China’s crude oil imports, Oman supplied 10%, the United Arab Emirates 4% and Kuwait 3%. Qatar provided 34% of China’s gas imports.
Asian-GCC economic relations have taken time to expand, encountering setbacks on the way. The 2011 Malaysia-GCC framework agreement failed to enhance bilateral economic cooperation, raising questions at the time in Malaysian political circles about the utility of such accords. Today, Saudi Arabia and the UAE have major investments in Malaysia. UAE investments have flowed into machinery equipment. Saudi investments have been in the petroleum and petrochemical industries.
Asia has developed into the world’s centre for the manufacturing of exported goods. The GCC is the world’s top region for energy export. Asia needs the energy to fuel its manufacturing export industry and the GCC needs markets for its growing exports. The two regions’ goals complement each other.
It took time for the two sides to sign and implement the necessary accords that would forge the new relationship. Oil trade relations between the two parties were previously run by major international oil companies. There were hardly any direct deals between the national oil companies of the two parties. The picture has changed. Asia has become the GCC’s most important trading partner, accounting for importing around 70% of its oil exports.
Contacts have increased between the national oil companies of the two regions. In the past decade, oil relations between the regions have expanded to include joint ventures building refineries and petrochemical companies in the consuming Asian states, mostly by the national oil company, with international oil firms’ participation in several cases.
The national oil companies of the GCC saw these joint ventures as profitable investments in growing markets and a way to secure their market share in Asian countries. Asian companies saw the refineries and petrochemical joint ventures as a way to secure crude oil and supply their growing export industries with petrochemical products, as well as tapping GCC financial investments.
GCC petroleum investments in Asia have been growing gradually. They were highlighted during the past few weeks by the month-long visit of Saudi King Salman bin Abdulaziz Al Saud to seven Asian countries. Scores of economic agreements were signed.
The main oil accord concluded was the sale and purchase agreement on February 28th between Saudi Aramco and Malaysia’s Petronas allowing Aramco equity participation in Petronas Refinery and the Petrochemical Integrated Development project in the southern Malaysian state of Johr. The partnership is on a 50/50 basis. Aramco will provide the oil, Petronas the gas and other energy sources.
A decade ago, Aramco entered a partnership with ExxonMobil and Sinopec for a project to triple the capacity of the southern Chinese Fujian refinery from 80,000 bpd to 240,000 bpd, with production starting in 2019. The project also calls for the building of a petrochemical complex. Saudi Aramco and Exxon Mobil will be able to sell petroleum products in the coveted Chinese market. The refinery will process Saudi heavy crude.
Other joint oil ventures include an agreement signed on March 17th between the Abu Dhabi National Oil Company (ADNOC) and India to build storage capacity for approximately 6 million barrels of crude oil in India. The deal covers storing the oil in India’s underground storage. This will provide commercial stocks near the Indian market, which could lower the oil cost to India during emergencies.
It will also expand ADNOC’s presence in South Asian markets. ADNOC plans to store its light Murban crude with low sulphur content, which is coveted for its high yield of light distillates such as naphtha and jet fuel/kerosene.
During the second half of 2017, Vietnam’s consumers are to receive Kuwaiti petroleum products processed at the 200,000 bpd Nghi Son refinery and petrochemical complex in Thanh Hoa province in central Vietnam. The complex is a joint venture shared by Kuwait Petroleum International (KPI) with Petro Vietnam.
A second agreement composed of KPI and Japan will result in the sale of Nghi Son refinery petroleum products across Vietnam. It will lead to constructing and managing service stations across Vietnam. Kuwait Petroleum Company will supply the crude for the refinery.
Saudi Aramco is a shareholder in Japan’s 400,000 bpd Showa Shell refinery. Aramco also has a stake in South Korea’s 70,000 bpd S-Oil refinery while Oman has a stake in India’s 120,000 bpd Bina refinery.