Saudi Aramco & Other Middle East Exporters Raise Overseas Refining Investments.

The state-owned Saudi Aramco and other Middle East oil exporters are investing heavily in refineries at home and abroad. Flush with cash in view of high crude oil prices, they are helping alleviate a world shortage of refining capacity.

Refining capacity in Saudi Arabia is rising from 2m b/d to over 3.6m b/d by 2010, including two heavy conversion plants to turn heavy/sour crude oils into clean fuels. Saudi Aramco wants to have another four or five such conversion plants in the next decade (see survey of Saudi Arabia in Nos. 13-17).

Saudi Aramco is negotiating a partnership with Sinopec in China for a $12 bn oil refining and petrochemicals plant to be built at Qingdao, in the eastern Shandong province. Saudi Aramco and ExxonMobil have a stake in Sinopec's integrated refining and petrochemicals project at Fujian, where a 80,000 b/d refinery is expanding to 240,000 b/d.

Seoul's Commerce, Industry and Energy Ministry on Nov. 30 said Saudi Aramco may invest $3-3.5 bn to build a refinery in South Korea to turn high-sulphur heavy fuel oil (HSHO) into premium products. Saudi Aramco is not new to South Korea, having had a 35% stake in S-Oil Corp, the country's third biggest oil refiner.

Reuters on Dec. 1 quoted a spokesman for S-Oil as saying the company had not been informed of the new investment. Saudi Crown Prince Sultan ibn Abdel Aziz said during a recent meeting with visiting South Korean Prime Minister Lee Hae-chan he would order positive consideration for a proposal to build a Bunker-C cracking plant to produce more profitable gasoline, diesel and kerosine.

Asian refiners are pouring billions of US dollars into upgrading their refineries in an effort to meet tightening fuel standards throughout the region. Reuters on Dec. 1 quoted "analysts" as saying the proposed refinery "was highly likely to be built for S-Oil and would be the right move in terms of growth for the refiner", in view of rising fuel demand in China, the world's second-biggest oil consumer.

Cha Hong-sun, a Goodmorning Shinhan Securities analyst, said: "The world needs cleaner fuels like diesel and gasoline more and more. The new plant is a desirable move for S-Oil's future growth in the medium- and long-term".

The move should raise S-Oil's demand for high-sulphur crude oil from Saudi Arabia, the biggest oil supplier to South Korea, which is the world's number four crude oil buyer. Saudi Aramco supplies all S-Oil's crude.

S-Oil has a 290,000 b/d Bunker-C cracking plant. Its capacity stands at 580,000 b/d. Its capacity to process clean fuels exceeds that of bigger domestic rivals. But top refiner SK and GS Caltex are expanding rapidly to cash in on rising regional demand for cleaner fuels.

The new Saudi Aramco plan may boost spending by South Korean refiners to as much as $9.5 bn over the next three years as demand increases from China, the world's fastest-growing fuel market.

Profit from processing crude oil into gasoline and other fuels rose to a record in Asia this year. Adding plants in South Korea will increase demand for HSFO produced by Saudi Aramco. South Korea sold $10.2 bn of oil products overseas last year, the sixth-largest exports for the country.

SK expects to decide in early 2006 whether it will build a $2 bn second fluidised catalytic cracker to process about 60,000 b/d of heavy oil into more value-added fuels. GS Caltex, a 50:50 JV between South Korea's GS Holdings and Chevron, has said it planned to invest 1.2 trillion won ($1.16 bn) to build a diesel-making hydrocracker with a capacity of 50,000-60,000 b/d by 2007.Hyundai Oilbank Corp is considering a cleaner-burning fuel plant, with a final decision to come before end-2005.

By end-2007, countries consuming more than half of Asia's 24m b/d oil demand will move to lower-sulphur emission standards. By 2010, nearly all of Asia will have tightened specifications.

South Korea imported 21.2m barrels of crude oil per month on average from Saudi Aramco last year. Its Saudi purchases this year are much higher as the top four South Korean refiners have increased their exports of clean fuels, mainly to China and partly to Japan. Saudi Aramco has stakes in oil refining ventures in Japan and the Philippines (see Saudi Aramco's overseas assets in omt16SaudiOversOct17-05).