Saudi: Continuing structural reforms

Aramco’s trading unit started doing deals earlier this month at its new office in the UAE port of Fujairah.  The new Fujairah office is part of a global push into new markets to secure buyers for oil products as well as crude. It already has a Singapore branch, plans to open an office in Europe and has started trading LNG.

Saudi Aramco aims to double its refining capacity to about 10 million barrels per day over the next decade and is set to start a new 400,000 bpd oil-processing plant this year at Jazan. Aramco Trading targets trading 6 million bpd of crude and products by 2020 compared with about 4 million bpd last year. If it reaches its goal, Aramco Trading would rival Vitol Group, the world’s largest independent trader, which trades about 7 million bpd of crude and products.

It also plans to tap the US gas market, agreeing earlier this month to buy a stake in a Sempra Energy LNG project in Texas and to buy fuel from the plant in a 20-year contract. Aramco plans to become a major global LNG player and it chimes with moves by global oil majors like Shell, BP and ExxonMobil. Statements by both companies did not reveal if the gas will be consumed domestically in the kingdom or will be sold to international buyers. 

In addition to the US deal, Saudi Arabia is in discussions with Russia’s Novatek for a stake in the new Arctic LNG 2 project which is scheduled for commissioning in 2023, and the Saudi Energy Minister Khalid al-Falih also said they are looking at LNG projects in Australia and Africa. This would allow it to import some cargoes as well as to the international market. Aramco’s trading arm has, for the first time, sold its first LNG from Singapore on the spot market in April to an Indian buyer, edging it closer to its vision to become a global LNG player.

According to SAMA’s latest report, Saudi Arabia’s economy is expected to pick up in 2019 (without giving a forecast), but a global economic slowdown and its potential effect on the global oil market could impact growth. While continued structural reforms will likely place some pressure on economic growth in the short-term, recent monthly indicators have been positive.

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