Saudi Aramco and the push towards downstream dominance
Saudi Aramco has recently made several key moves to develop its downstream portfolio
Saudi Aramco announced on 31 December that it completed the acquisition of the remaining 50% stake in ARLANXEO, its Netherlands-based specialty chemicals joint venture with German specialty chemicals company LANXESS. The joint venture was formed in 2016.
This was the latest in its push towards diversifying its business by expanding its regional and international downstream presence. Saudi Aramco also announced in December the creation of Saudi Aramco Retail Company (RetailCo) to expand the company's network of domestic fuel retail stations across the Kingdom.
“Integrating fully across the hydrocarbon value chain is key to capturing maximum value from our resources," said Abdulaziz Al-Judaimi, Saudi Aramco's senior vice president of downstream, in a press release announcing RetailCo's creation.
It is a strategic, long-term move as the world is expected to hit peak oil demand and then transition towards gas and renewables as energy sources.
"We expect integration of upstream and downstream to be very important here [in the Middle East]," said Alan Gelder, vice present of refining and chemicals at Wood Mackenzie. "If you look globally, international oil companies have more refining capacity than crude capacity so they can argue in an energy transition they can migrate towards gas, there's no risk of crude being stranded."
At the Gulf Petrochemicals & Chemicals Association Forum in November, Saudi Aramco President and CEO Amin Nasser highlighted the importance of the downstream sector for the company's growth. He noted that chemicals will represent around one third of growth in world oil demand between 2018 and 2030, and petrochemicals will add nearly seven million barrels per day of oil demand (bpd) by 2050, reaching 20mn bpd.
"The tremendous growth in chemicals demand provides us with a fantastic window of opportunity—but such windows by their very nature offer maximum benefit only to those who act quickly," Nasser said. "Also, those opportunities will not fall into our hands; instead, we must actively pursue them."
He outlined three strategies: Integrating petrochemicals into the company's expanding global refining and marketing system; developing oil-centric chemicals technologies; acquiring downstream assets. The company aims to combine organic growth with strategic acquisitions to bolster its downstream portfolio.
Saudi Aramco is currently negotiating to buy a controlling stake in Saudi chemicals giant Sabic, and in November announced that it would develop an integrated industrial oil processing complex with Sabic at Yanbu. It also signed an MoU with Zhejiang Petrochemicals in October to acquire a share of its new refinery project, and launched engineering studies with oil major Total to build a giant petrochemical complex in Jubail.