(Refiles to clarify in paragraph 7 that RAPID will be one of
Aramco's biggest new refinery projects outside Saudi Arabia)
* Saudi king's lavish tour belies hardnosed oil strategy
* Aramco's $7 billion JV in Malaysian refinery key
* Deal with Malaysia's Petronas helps diversify Saudi Aramco
* It also gives Saudi's more leverage over oil product
* Deals seen helping Aramco valuation ahead of IPO
By Henning Gloystein
SINGAPORE, March 20 Saudi King Salman's lavish
tour of Asia, arriving in each country on a golden escalator
with 400 tonnes of luggage, had a hardnosed marketing mission -
to cement the kingdom's place as leading oil supplier to the
world's biggest consumer region.
The string of deals inked on his three-week tour to
Malaysia, Indonesia, Japan and China also point to a fresh
strategy, one to increase Saudi leverage over refined product
and petrochemical markets, known as the downstream sector.
"Our strategy is about growth in the downstream," said Amin
Nasser, chief executive officer of state oil company Aramco,
told Reuters on Sunday. "The growth in that sector is very
important, and anything integrated between refining,
petrochemical, with marketing and distribution, is of interest
Saudi Arabia's main influence on oil markets has been via
the Organization of the Petroleum Exporting Countries (OPEC), of
which it is the de-facto leader.
But OPEC's ability to control prices by turning the oil
pumping spigots on and off has waned as non-OPEC producers like
Russia and, more recently, U.S. shale drillers, have ramped up
output and eroded its grip on market share.
One indication of a shift in Saudi strategy came on the
first leg of the tour in Kuala Lumpur. Aramco signed a deal to
take a $7 billion investment, in a joint venture with Malaysia's
state oil company Petronas in a refinery and petrochemical
project known as RAPID (Refinery and Petrochemical Integrated
Under construction in Malaysia's southern Johor state, RAPID
is just across a narrow strait from Singapore, Asia's oil
trading hub. Some 70 percent of the oil for the project, set to
start in 2019, will come from Saudi Arabia, giving the kingdom a
key outlet for its crude in Asia, the world's fastest growing
market. It is one of Aramco's largest new refinery projects
outside the kingdom.
Aramco also recently made a deal with Indonesia's Pertamina
over a $5 billion expansion of the country's largest oil
refinery, for which Aramco will supply the crude.
"The investments are intended to enhance Aramco's
competitive position in Southeast Asia," said Ihsan Buhulaiga, a
The Malaysian investment also allows the Saudis to join the
hub of refineries in and around Singapore that help determine
fuel prices in the region.
Price agency S&P Global Platts assesses dozens of
fuel products during a set time every day, based on deliveries
in and out of this region. Platts calls it Market-on-Close, but
traders dub it "the window", and it influences pricing of oil
products worth billions of dollars each day.
While crude and fuel products by many companies flow in and
out of the pricing region, known as FOB Straits. But the only
refineries now in this price region are operated by U.S. Exxon
, Anglo-Dutch Royal Dutch Shell, and Singapore
Petroleum Corp (SPC), owned by PetroChina.
"When you control refining capacity with the capability to
deliver petroleum products into the window, you have access to a
physical outlet which also plays a key role in daily price
discovery," said John Driscoll, director of consultancy JTD
Energy in Singapore.
The Saudi move deeper into refineries and petrochemical
plants would likely help the potential valuation of Aramco in
what could be the world's largest-ever initial public offering.
Deputy Crown Prince Mohammed bin Salman, who oversees the
kingdom's economic policy, has said the sale is expected to
value Aramco at $2 trillion or more. Analysts have estimated a
valuation between $1 trillion and $1.5 trillion.
Singapore, along with Hong Kong and Tokyo have been
mentioned as possible exchanges where Aramco's shares would be
traded. The primary listing will be on Saudi Arabia's domestic
exchange, and Riyadh is also looking at New York or London for
the secondary listing.
Aramco's joint ventures in Malaysia, Indonesia and elsewhere
are not only aimed at increasing its refining capacity. Its new
deals in the region would also greatly increase its
participation in the petrochemical sector, which involves all
forms of plastics and where profits have soared thanks to strong
"We have capacity of about 5.4 million barrels per day of
participated refining capacity, and our target is to reach 10
million barrels by 2030," Aramco's Nasser said.
Ultimately, the big prize is China, where the Saudis signed
deals that could be worth as much as $65 billion during the last
leg of the king's Asian tour, covering energy, manufacturing and
even a theme park in the kingdom.
The deals included a memorandum of understanding between
Aramco and China North Industries Group Corp (Norinco) to look
into building refining and petrochemical plants in China.
John Sfakianakis, director of the Riyadh-based Gulf Research
Centre, said that the trip was "the beginning of a long-term
strategy of Saudi Arabia to open itself to Asian investors and
vice versa" as part of its Vision 2030 policy to diversify its
economy beyond crude exports.
(Reporting by Matthew Miller in BEIJING, Reem Shamseddine in
RIYADH, Rania El Gamal in DUBAI, and Florence Tan in SINGAPORE;
Editing by Bill Tarrant)