SAUDI ARABIA - Part 4 - The Overseas Refining & Market Share Investments.

The state-owned Saudi Aramco has partnerships in overseas oil refining and retailing ventures which have a total capacity of 1.678 million b/d. Of these, refining capacities of 923,000 b/d are in the US and Greece. The other 755,000 b/d are in South Korea, the Philippines and China. Refining projects in Asia where Saudi Aramco may invest could involve another 940,000 b/d.

Private Saudi businessmen have built up an impressive overseas presence from the upstream end to refining and distribution. They have links to key members of the royal family, and are widening their presence overseas. Corral Petroleum of the Amoudi family owns Preem Petroleum of Sweden which has moved to Morocco and other markets. Nimir Petroleum of the Bin Mahfouz family has ventures from Sakhalin in Russia to Venezuela. Delta International, a smaller but agile company, is involved in Azerbaijan and Afghanistan (see Gas Market Trends).

The Market Perspective: Market confidence in OPEC's price defence strategy is strong. Saudi Arabia and the other major oil exporters - including non-OPEC Mexico, Oman, Norway and Russia - want to see this strategy extended at least for another year beyond end-March 2000. As a result, crude oil prices have remained firm in recent months and are expected to exceed the 1997 average. World demand for oil in the coming year will be 2.5m b/d higher than in 1999 and inventories, a weakening buffer between supply and prices, are likely to fall to 1996 levels in 2000.

Preparations for the forthcoming OPEC summit, to be held in Caracas in March 2000, have already begun. Algeria, Iran and other OPEC members want the summit to adopt a longer term strategy for price defence. There are proposals for OPEC summits to be held annually for the next five years, to make sure world oil inventories remain low enough to keep the value of petroleum at a reasonable level.

The strength of the markets on both sides of Suez now is reflected by the price of Brent, the world's main marker for crude oils. December Brent in futures trading began to overtake WTI on Nov. 3, when it rose to $22.60 while the US marker was at $22.49. In spot trading on Nov. 15, Dated Brent rose to $25.91 while spot WTI fetched $25.32 and Dubai was at $23.92. The last time Brent overtook WTI was during the Gulf war in early 1991.

Saudi Aramco's International Division, created in 1991, is in charge of the company's overseas investments. It handles all matters from oil sales to transportation and storage, monitoring market developments and new investment opportunities, pursuing negotiations with potential partners and acquiring logistics in key locations.

The division has been monitoring consolidation among the majors in the oil industry, which began in 1996 with the European downstream merger of BP and Mobil. Then came the US downstream merger agreement in 1997 between Shell and Texaco for one venture and between Shell and Star Enterprise (50-50 Texaco & Saudi Aramco) for another venture. The trend accelerated in 1998 when BP took over Amoco and then Arco, with Exxon and Mobil now negotiating a merger since late 1998.