Saudi Aramco to Invest $200 Billion in Refining, Exploration

Saudi Arabian Oil Co. plans to build refineries in China and Indonesia as part of a $200 billion spending program to double refining capacity and explore for oil and natural gas during the next decade.

Saudi Aramco, as the state-run company is known, is preparing for talks about “final terms” for a Chinese refinery and is still waiting for “good terms to be put on the table” for a processing plant in Indonesia, Chief Executive Officer Khalid al-Falih said in an interview. Aramco will probably decide soon whether to invest in expanding a plant it operates with Japan’s Sumitomo Chemical Co., he said on Jan. 14.

Aramco, the world’s largest crude exporter, is expanding refining and petrochemical production to meet domestic demand and export refined products that can fetch higher prices than oil. The company plans to boost its global refining capacity to 8 million barrels a day in 10 years, including projects yet to be announced, al-Falih said.

“It’s an aspiration for a longer-term growth objective,” he said of the refining-capacity target in the interview at company headquarters in the eastern Saudi city of Dhahran.

Aramco also plans to invest in drilling for oil and gas inside the kingdom and in petrochemicals production and other downstream activities, he said.

Tight Gas

The company is exploring for unconventional gas, including shale and tight gas, in the nation’s northwestern region, al- Falih said on Jan. 14. Low gas prices are a “challenge” to developing these hard-to-reach deposits, he said. Aramco’s capital spending will probably rise to more than $20 billion a year if it develops unconventional gas, he said in the interview.

Aramco will invest $90 billion in the next five years to increase refining capacity by 50 percent to 6 million barrels a day in projects “that more or less have been identified,” al- Falih said. Refining capacity in Saudi Arabia itself will rise to 3.46 million barrels a day in 2016 from 2.26 million barrels, according to a presentation Aramco officials made at an October conference in Bahrain.

Saudi Arabia’s crude oil production rate in December was 9.76 million barrels a day, the Organization of Petroleum Exporting Countries said in a report yesterday, using the average of several external estimates.

China Demand

Most of the capacity to be added above the five-year target will be at refineries in Asia, with the bulk of that in China, al-Falih said. Aramco seeks to tap increasing consumption in China, Asia’s biggest energy user, by forming joint ventures with local partners.

The CEO said he was confident about reaching final terms on a plant with China National Petroleum Corp. (CNPZ), that nation’s largest energy producer, to be built in southern Yunnan province. The companies have agreed on the scope of the project, including the refinery and marketing, he said.

“It’s always key for Saudi Aramco when we invest anywhere to consider both the refining side and the retail marketing network,” he said.

A pipeline to transport crude to the refinery from neighboring Myanmar will be completed in 2013, al-Falih said. Aramco would ship Arabian Light and Arabian Medium crude grades under long-term contracts to Myanmar for onward transportation through the pipeline, he said.

Positive Indications

In Indonesia, “early indications are positive” on Aramco’s plan to develop a refinery with state-run PT Pertamina (PERT), al-Falih said. The companies may build a 300,000 barrel-a-day refinery in Tuban in East Java, Edi Setianto, Pertamina’s processing director, told the Jakarta Globe newspaper. The $8.8 billion plant may start operating in 2018, according to the Dec. 29 report.

Al-Falih declined to predict when Aramco would conclude discussions on either the Chinese or Indonesian project.

“It took us nine years to finalize the terms with Sinopec, and it’s only less than a year since we started talks with PetroChina,” he said. PetroChina Co. (857) is China National Petroleum’s Hong Kong-listed unit. “It will take some time but I’m sure ultimately we will have a very good project with a very good partner.”

Japanese Partner

Aramco will meet this month with Sumitomo Chemical to discuss “where to go from here” on the planned expansion of their jointly owned PetroRabigh refinery in Saudi Arabia. The partners missed their year-end target for deciding whether to invest $6 billion to $8 billion to enlarge the facility.

“When we said year-end, we meant more or less that date,” al-Falih said.

Saudi Aramco is committed to make the expansion of Phase 2 of PetroRabigh happen and al-Falih said he’s confident that both companies will come to an agreement on the enlargement.

Saudi Aramco might consider expanding the Ras Tanura refinery as a part of its plan to double refining capacity in 10 years, al-Falih said on Jan. 14. The expansion involved a plant to process 400,000 barrels a day of Arabian Heavy crude though the company pushed this into the future after it decided to add a new local refinery with the same capacity in Jazan, in southern Saudi Arabia. Ras Tanura is Aramco’s largest local refinery with a capacity to refine 550,000 barrels of oil a day.

Aramco and Sinopec signed an agreement on Jan. 14 to develop a refinery in the Saudi city of Yanbu at a cost of as much as $10 billion. The 400,000 barrel-a-day plant will probably begin operating in 2014, al-Falih said after the signing ceremony in Dhahran.

Sinopec, Aramco’s largest Chinese customer, agreed last March to take a 37.5 percent stake in the Red Sea refinery, known by its acronym Yasref. The two companies are in early talks to add a new refinery in China that can process as much as 300,000 barrels a day, al-Falih told reporters.

The signing coincided with a visit by Chinese Premier Wen Jiabao to the Saudi capital Riyadh.

To contact the reporter on this story: Wael Mahdi in Dhahran, Saudi Arabia at wmahdi@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.