Aramco tends to Asian consumer relations
Thursday, Mar 15, 2018
Saudi Aramco’s deepening network of ties with major Asian crude buyers gained fresh impetus in late February.

At home, efforts to enlist the company’s key existing foreign partners in delivering the kingdom’s Vision 2030 economic blueprint bore fruit in a commitment by a long-standing Japanese investor to establish a steel mill at Ras al-Khair.

Aramco is leading the development of a flagship maritime services complex at the port in the Eastern Province, north of Jubail.

Meanwhile, ministers from Riyadh and New Delhi confirmed that final details were being ironed out for the Saudi company’s long-mooted entry into the refining sector of India – the world’s third largest and fastest-growing oil consumer.

On February 28, Aramco announced signature of a memorandum of understanding (MoU) with Japan’s Nippon Steel & Sumitomo Metal and parent company Sumitomo Corp. to conduct a feasibility study on a proposed integrated steel mill producing steel plates – which would be established in Ras al-Khair.

No detail was provided on the envisaged capacity, cost or timeframe of the project. However, the announcement noted the potential uses of steel plates – namely the manufacture of pipes, pressure vessels, marine vessels and offshore platforms – making clear the linkage with the wider Ras al-Khair maritime complex development, where operations are scheduled to start in 2021.

The estimated US$5.2 billion scheme is being developed by Aramco in joint venture (JV) with local shipping affiliate Bahri, UAE-based fabricator Lamprell and South Korean shipbuilding giant Hyundai Heavy Industries – and will encompass ship and rig building and repair services.

Several other foreign companies have also committed to establishing ancillary projects.

Sumitomo Corp. is a long-established 50:50 Aramco partner in the 13-year-old Rabigh Refining & Petrochemical Co. (PetroRabigh) JV – the project company for the Saudi firm’s maiden integrated refining and petrochemicals complex, at Rabigh on the Red Sea coast.

Other international investments in the wider Ras al-Khair development have likewise been linked to partnership elsewhere in Aramco’s far-reaching operations.

US contracting stalwart McDermott signed an MoU in March 2017 to establish a manufacturing facility at the nascent offshore services hub. This included commitments whose failure to meet which would have consequences for McDermott’s lucrative position as a signatory of one of Aramco’s long-term agreements (LTAs). These grant qualification for tens of billions of dollars-worth of offshore contracting.

Meanwhile, Lamprell’s commitment to the Ras al-Khair complex was rewarded with negotiations, still ongoing, on joining the exclusive LTA pool.

In mid-2016, US-based GE Oil & Gas – which last year merged with compatriot BakerHughes, a major supplier of oilfield services to Aramco – and Italy’s Cividale signed an agreement to establish a 50,000-75,000-tpy forgings and castings manufacturing facility at the east coast site.

Indian investment
Aramco’s deepening of ties with the company’s main Asian consumers has more typically taken the form of investment in the latter’s downstream sectors.

Plans to invest in Indian refining date back more than two decades – inducing inevitable scepticism towards new announcements in this regard. Momentum now appears to be building behind a proposed investment by Aramco in a planned 1.2 million bpd greenfield refinery in western Maharashtra State.

“Agreements have already been signed that allow discussions to start on configuration [on the basis of design and pre-feasibility studies],” Saudi Minister of Energy, Industry & Mineral Resources Khalid al-Falih said in late February. “Aramco is also looking at other opportunities to buy into existing refineries in India as well as upgrades of existing refineries,” he said, speaking following talks with his Indian counterpart Dharmendra Pradhan in New Delhi.

The company has previously been reported to be in talks over participating in the expansion of the 120,000 bpd Bina refinery in central Madhya Pradesh State and in a 1.9 million tpy petrochemicals complex planned in Gujarat in the north-west. Pradhan also confirmed discussions about investment in an estimated US$5 billion petrochemicals facility in Andhra Pradesh.

Saudi Arabia is India’s second biggest crude supplier – having been gallingly overtaken by Iraq last year – accounting for just under 20% of total imports, and the Indian minister hinted that differences over price might be hindering the various deals’ consummation.

“Some instrument can be developed so that the pricing is suitable for both of us,” he told reporters on February 23. “We must get a reasonable price for crude and LPG.”

Contacts have been growing elsewhere in the value chain. In October, Aramco opened an office in New Delhi and Pradhan confirmed in his latest remarks that the company had been invited to take a stake in the second phase of India’s strategic petroleum reserve.

Counterpart Abu Dhabi National Oil Co. (ADNOC) agreed in early 2017 to store 5.86 million barrels of crude at a storage facility in Mangalore – one of the three being constructed under the plan’s first phase.

Meanwhile, a deal in mid-February by a trio of Indian parastatals to acquire the country’s first upstream interests in the GCC in the form of a 20% stake in one of the emirate’s largest offshore oilfields confirmed New Delhi’s intention to deepen ties with major Gulf producers in pursuit of security of supply.

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