Saudis Seen Bolstering Oil Market Defense With Asia Storage

Images from The Saudi Arabia-Japan Business Forum For Saudi Arabia Vision 2030

Amin Nasser attends a business forum in Tokyo Thursday. Photographer: Tomohiro Ohsumi/Bloomberg

  • Plans to raise Okinawa storage to about 8 million barrels
  • Aramco negotiating oil storage projects in China: Al-Falih

Saudi Arabia is poised to expand use of oil storage tanks in Japan and China, strengthening ties with its two largest Asian buyers as it fends off competitors for market share.

The world’s biggest exporter plans to increase the amount of storage capacity it uses on Japan’s Okinawa islands, where it’s been leasing tanks since 2010, Amin Nasser chief executive officer of Saudi Arabian Oil Co., said Thursday in Tokyo. The state-run producer, known as Aramco, is negotiating for commercial and government crude storage projects in China to help the country import more Saudi crude, Oil Minister Khalid Al-Falih said in an interview with Al-Arabiya television.

“It helps Saudi Arabia to be seen as the preferred supplier, who can easily help during sudden unforeseen events, and gives it a leg up against rival producers,” said Tushar Tarun Bansal, director at Singapore-based Ivy Global Energy, a consultant. In addition to investing in Asian oil refineries, storage is part of the “Saudi strategy to be closer to their largest markets,” he said.

Oil storage near buyers can give producers greater logistical flexibility to quickly tap pockets of local demand and helps establish themselves as reliable suppliers during emergencies. This may bolster Saudi Arabia’s defense of its market share amid a global glut that’s halved prices in the last two years and left buyers with more choices of supply.

Iran boosted exports to major oil consumers in Asia during the first half of this year after international sanctions that restricted its supplies were eased in January. Japan’s purchases increased 28 percent, India bought 63 percent more, South Korea’s imports more than doubled while shipments into China gained 2.5 percent, government and shipping data compiled by Bloomberg show.

Russia has made in-roads into China thanks to its East Siberia-Pacific Ocean pipeline. In the first half of this year, Saudi Arabia and Russia each had a 14 percent share of China’s oil market, according to China customs data. This compares with Saudi Arabia’s 15 percent stake versus Russia’s 13 percent the year before. In 2014, Saudi Arabia has a 16 percent share, while Russia had 11 percent.

Oil trimmed losses as it headed for the biggest weekly drop in almost eight months amid the global glut. West Texas Intermediate rose as much 55 cents, or 1.3 percent, to $43.71 a barrel at 8:48 a.m. Tokyo time.

‘New Chapter’

Saudi Aramco recently used the Japan storage to help sales to China. The producer sold a spot crude cargo loading in June from the leased capacity in Okinawa to Shandong Chambroad, its first sale to an independent Chinese refiner, people with knowledge of the deal said in April. The sale “may mark the turning of a dramatic new chapter in the Saudi playbook” as it was spot rather than a start of a new term contract, Citigroup Inc. analysts including Ed Morse said in an e-mailed note at that time. The company traditionally sells its oil only through long-term contracts.

In China on Tuesday, Saudi Deputy Crown Prince Mohammed bin Salman signed a memorandum of understanding on oil storage, the kingdom’s official press agency reported, without providing details. Aramco has held talks in China with both companies on commercial storage as well as with the government, Al-Falih said in the television interview. China outlined in 2009 that it plans to build strategic oil reserves equivalent to 100 days of net imports, which supplement commercial inventories held by refiners and storage firms.

Commanding Share

Japan, which imports almost all of its oil requirements, is leasing storage capacity to two of its biggest crude suppliers while it gets priority for buying the fuel stored in the tanks in the event of an emergency. Saudi Aramco plans to increase its storage on Okinawa by roughly 2 million barrels, according to Nasser. The company currently leases about 6.29 million barrels of capacity.

The country has a deal allowing Abu Dhabi to store 1 million kiloliters of crude in Kagoshima prefecture in southwestern Japan. Saudi Arabia, Japan’s biggest crude supplier, shipped 65.58 million kiloliters of crude, or 33.5 percent of the total, to the Asian nation in 2015. The United Arab Emirates, the second biggest supplier, accounted for 25.2 percent of Japan’s crude imports, according to data from the Ministry of Economy, Trade and Industry.

“There is no country that can stand ahead of Japan in terms of our commitment to providing energy, whether its crude oil, LPG, gas or refined products,” Al-Falih said Thursday in Tokyo. “We supply essentially every Japanese petroleum company with their requirements of feedstock. And as a result, we have this commanding market share in Japan.”

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