GCC petroleum investments growing in Asia

Sunday 26/03/2017
Growing investments. Saudi Energy Minister Khalid al-Falih (L) shakes hands with Malaysia’s Minister in the Prime Minister’s Department Abdul Rahman Dahlan during a press conference in Kuala Lumpur. (AP)

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.