Saudi Arabia’s Biggest Asian Oil Buyers Await Crown Prince Visit

  • Aramco IPO opportunity for Chinese investment: Bernstein
  • Prince Salman scheduled to attend Group of 20 Summit in China

China and Japan, Saudi Arabia’s biggest oil buyers in Asia, are preparing for a visit by the kingdom’s Deputy Crown Prince Mohammed bin Salman, an opportunity to deepen energy ties as the world’s largest crude exporter prepares what’s expected to be the biggest IPO ever.

Selling about 5 percent of the state-run oil producer Saudi Arabian Oil Co., which is estimated to raise about $100 billion, is key to the deputy crown prince’s plan to expand the nation’s economy beyond petroleum. The company also intends to invest in Asian refineries to lock-in buyers in countries including China, India, Indonesia, Malaysia and Vietnam.

“The relationship with Asia is going to be absolutely critical over the coming years as demand increasingly shifts in this direction,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “Getting the Chinese to invest either in Aramco directly through the oil majors, or potentially listing in Asia, would be another way of deepening ties.”

Given its size and the potential appetite by public and private investors in Asia, the initial public offering for the state oil company, known as Saudi Aramco, will likely be part of the discussions, said John Sfakianakis, director of economic research at the Gulf Research Center. The kingdom hasn’t decided where the company will be listed.

Vying for IPO

“Almost all the major exchanges have approached us. Everybody is vying for Aramco to be listed,” Khalid Al-Falih, Saudi Arabia’s minister of energy and industry said in an interview Thursday in Los Angeles. “Each of these jurisdictions brings some strengths, but also brings some limitations and in some cases some risks.”

Prince Salman will visit China Aug. 29-31 and again on Sept. 4-5 to attend the Group of 20 Summit, according to the Chinese foreign ministry. In between, the prince will meet Prime Minister Shinzo Abe during his Japan visit from Aug. 31 to Sept. 3, according to the Japanese foreign ministry. The Saudi government hasn’t responded to requests for comment on the details of the deputy crown prince’s visit.

Highlights of the energy relationships China and Japan have with Saudi Arabia include:

China

  • Imported about 1.07 million barrels of oil a day in the first half of the year from Saudi Arabia, accounting for about 14 percent of the country’s overseas supply. 
  • State-owned, Sinopec Group, the world’s largest refiner, is said to be identified by Saudi Arabia as a strategic investor in Saudi Aramco, the Daily Telegraph reported in May.
  • Russia has challenged Saudi Arabia for the top-supplier spot due to its direct pipeline link and Pacific Ocean export terminal.
  • China’s independent oil refiners, known as teapots, have become a new source of customers, with Iran emerging as a competing crude supplier.
  • Aramco is in initial talks with PetroChina Co. about partnering in the company’s Yunnan refinery.
  • Aramco holds 22.5 percent of a refining and fuel marketing company in Fujian, while Saudi Basic Industries Corp. holds a 50 percent stake in a polycarbonate complex in Tianjin with Sinopec Group.
  • In Saudi Arabia, Sinopec Group’s China Petroleum & Chemical holds a 37.5 percent stake in the Yanbu refinery.

Japan

  • Saudi Arabia’s oil shipments to Japan in the first half of the year rose 8 percent to 1.2 million barrels a day, keeping it the country’s largest supplier.
  • Japan plans to discuss renewing an agreement allowing Aramco to store about 1 million kiloliters (6.29 million barrels) of crude on Okinawa island, as well as other economic initiatives, people with knowledge of the matter said last week.
  • Aramco holds 14.96 percent of oil refiner Showa Shell Sekiyu KK, the largest shareholder after Royal Dutch Shell Plc.
  • Aramco is close to finishing a petrochemical plant within its joint refinery with Japan’s Sumitomo Chemical Co. in Rabigh.

— With assistance by Stephen Stapczynski, Tsuyoshi Inajima, and Jing Yang

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