French Total to enter Saudi downstream business
By Dr. Cyril Widdershoven – Berry Commodities – Global Head of Strategy & Risk
Saudi Aramco is currently mainly in the news with regards to multibillion investment schemes in Asian markets, showing an increased appetite to lock in demand for Saudi crude in China, Pakistan and India. But make no mistake, local ventures could be making headlines again very soon.
In the last couple of days, news has popped up that Aramco and French oil major Total, through its Satorp joint-venture, Sumitomo Mitsui Banking Corporation and Riyad Bank to help raise funds to develop a petrochemical facility in the kingdom. The parties are asked to assist with the financing of the $5 billion Admiral project, which is going be in Jubail in the Eastern Province. Satorp already operates a refinery and will convert fossil fuels into building blocks for plastics. This new project is a logical step forward in the Saudi plan to diversify its oil-dependent economy and turn it into a more sustainable economy. Part of this move is to expand the petrochemicals sector. The Admiral project is expected to have a total production capacity of 2.7 million tons of chemicals per year, and is expected to come onstream by late 2023 or early 2024.
At the same time that this major project is hitting the wires, Saudi sources also have stated that within the next days, Saudi Aramco and Total will be announcing a new deal which entails the entrance of Total into the Saudi retail fuel market. Sources have indicated that this move could be published on Monday January 21, targeting the set up of a new line of Saudi and Total gasoline stations in the country. The move is said to take advantage of the opening of the downstream retail markets before there could be a new move to increase fuel prices in the Kingdom. The entrance by French oil giant Total into the Saudi local fuel markets could be significant, as it stimulates competition and diversification on one-side, but could also indicate a renewed move by the Kingdom to open up other oil and gas, and even upstream sectors for IOCs.
Looking at the success story of Total in the UAE (ADNOC), this Saudi move could be very important. It also could increase Aramco?s knowledge and access to upstream gas technologies and capabilities which are much needed to support the future target of self-sufficiency or even the Saudi dream of becoming a net-gas exporter.
The possible announcement of this downstream/retail deal was already a rumor at the end of 2018. At that time, Aramco stated that it had established a domestic fuel retailing subsidiary as part of the national oil company?s drive to expand beyond crude oil production into downstream businesses.
The set-up of this new company, Saudi Aramco Retail Co, has been supported by a feasibility study by Total. The latter was asked to evaluate the feasibility of jointly buying a retail service station network in Saudi Arabia. In December Total was not mentioned by Saudi officials, but now things seems to be heading towards the introduction of a Total retail network in the Kingdom too.
For the position of Aramco as a whole, the latter also is part of the other major goal, the IPO of Aramco. With an increased downstream presence, including access to the Kingdom itself, parties could be much more interested in participating if, as analysts now expect, the targeted Aramco downstream IPO (2021) would be also have this part included. A full scale downstream IPO, which will for sure include the SABIC assets, which are currently being acquired, could fetch the amount targeted by Saudi Crown Prince Mohammed bin Salman of around $100 billion.
By Dr. Cyril Widdershoven for Oilprice.com
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