The Port Arthur refinery in Texas is North America’s largest oil refinery, and as of this week Saudi Arabia controls all of it. With the stroke of a proverbial pen, Saudi’s state-owned oil giant Aramco took on 100 percent ownership of the port, cementing its access to the lucrative U.S. energy market at a critical time.
Industry experts say this week’s deal is Aramco’s latest power play before its highly anticipated IPO next year. But it also unveils a wider Aramco strategy no other state-owned oil giant has pursued yet: buying up downstream refineries worldwide to ensure steady consumer access regardless of prices.
In the latest deal, finalized Monday, Aramco gained full ownership of Port Arthur and 24 distribution terminals in a boon to investors eyeing the IPO. Before that, Aramco had a 50-50 stake in the refinery with Anglo-Dutch oil giant Royal Dutch Shell. Port Arthur, referred to as the “crown jewel” of U.S. refinery infrastructure, can process 600,000 barrels of oil a day.
Aramco is slated to go public next year and the government is hoping the IPO can net $2 trillion – the largest IPO in history by a long shot – to score some sorely needed cash. “This Port Arthur deal is about Saudis getting prepared to try and value Aramco at the highest amount they can before they go public,” said Andrew Holland, an energy expert at Washington-based think tank American Security Project.
Saudi Arabia and other petro-states are feeling the pain from record-low oil prices, squeezing their steady streams of government revenue. The U.S. market is one of the few bright spots for Saudi Arabia, the United States’ second-largest oil supplier after Canada. The Gulf kingdom exported 1.3 million barrels of crude a day to the United States in February, up 32 percent from last year.
This isn’t the first downstream refinery Aramco bought, and it won’t be the last. Aramco also bought up refineries in China, Japan, Indonesia, South Korea, and is exploring pricey new ventures in Malaysia and India.
That’s all part of a grand plan, said Jean-Francois Seznec, a 25-year energy industry veteran now with Georgetown University. As the sole state-owned oil company in the world’s largest petro-state, Aramco has a firm grip on its upstream business, so now it’s locking down control of downstream markets, he told FP. “They’re creating a baseload of demand for their crude production so Saudi oil will always have an outlet to sell in regardless of prices,” he said. “I think it’s a superb strategy.no other national companies appear to have the same strategy.”
A Saudi state company controlling the largest U.S. refinery may sound like a national security headache, but experts say it’s not. The problem rather is one of perception.
“The optics aren’t good,” said Bud Coote, a former energy analyst for the CIA and now with Washington-based think tank the Atlantic Council. “But the 1/8oil 3/8 industry’s globalization and interdependence may quell any alarm,” he said, adding Aramco likely wouldn’t risk any access to U.S. markets for Riyadh’s political gains. And U.S. relations with Saudi Arabia are much better than with other petro-states around the world, such as Iran, Russia, or Venezuela.
Unlike Russia’s state-owned energy companies, which the Kremlin wields as a blunt geopolitical weapon against energy hungry neighbors, Aramco has never put politics above commercial interests, Holland said. And the Saudi Royal family, which controls all aspects of the country’s government, is conspicuously absent from Aramco’s leadership.
“There is not a single member of the royal family in Saudi Aramco, not one,” Seznec said.
“Not even on board of directors.”
If there are concerns over the deal, however, they can be addressed through the Committee on Foreign Investment in the United States (CFIUS), an interagency panel that has the power to halt foreign transactions that threaten national security.
U.S. President Donald Trump appears to have backed off repeated campaign promises to wean the United States off foreign energy. In campaign speeches, Trump vowed to gain independence from “our foes and the oil cartels” (presumably referring to the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is a member), and threatened to curb Saudi crude imports if Riyadh didn’t pitch in more troops to the fight against ISIS.
Trump has since backed away from those statements, and U.S.-Saudi relations appear to be flourishing based on recent bilateral meetings. So, at least for now, the latest Aramco deal may be a win-win situation for Washington and Riyadh.
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