How Saudi Arabia successfully defended its US oil market share
How Saudi Arabia successfully defended its US oil market share
Saudi crude exports to the US have remained relatively constant at around 1.2 million barrels per day since 2009, even as tanker arrivals from other countries have halved from 6 million to 3 million bpd.
Saudi Arabia has have defended its market share through a combination of luck, strategic relationships and skilful marketing, a model the kingdom is now seeking to replicate in fast-growing fuel markets such as China.
CRUDE OIL QUALITY
Saudi Arabia has been fortunate in that the oil produced from shale is not in direct competition with its own crude exports.
Shale oils are very light with a density of only 780-825 kg per cubic meter.
The crude Saudi Arabia exports to the US is much heavier, with an average density of around 860 kg per cubic meter.
Refineries are highly selective about the crude they process since it has a big impact on how efficiently and profitably they can operate as well as problems with equipment fouling and product quality.
Most US refineries have therefore opted to make space for increasing shale production by cutting the amount of other light crudes they buy from countries in West Africa and Latin America.
Imports of medium and heavy crudes from Saudi Arabia and other countries around the Arabian Gulf have not been affected to anything like the same extent.
Saudi Arabia’s oil exports have also been protected by the long-standing strategic relationships the country has with refiners and marketers in the US.
Saudi Aramco, which handles the marketing of Saudi Arabia’s crude, is the successor to the Arabian American Oil Company, a partnership between Chevron, Texaco, Exxon and Mobil established in the 1930s and 1940s.
Chevron (which later acquired Texaco) and Exxon (which acquired Mobil) remain some of the largest importers of Saudi crude into the US, according to customs records.
In 1988, Saudi Aramco bought a 50 percent stake in Texaco’s refining and marketing operations in the eastern US and on the Gulf Coast, which was named Star Enterprises (“Saudi Arabia, Texaco join forces” Los Angeles Times, 1988).
In 1997, Royal Dutch Shell joined the joint venture, subsequently renamed Motiva. When Chevron merged with Texaco in 2001, Texaco’s interest in the combined refining and marketing operations was sold to Shell and Saudi Aramco and reorganized as a 50:50 joint venture between them.
Motiva operates three large refineries in Louisiana and Texas (Convent, Norco and Port Arthur) with a combined refining capacity of 1.1 million bpd.
Motiva also as a network of refined product storage terminals across the eastern US and markets gasoline, diesel and other refined products in 26 states and the District of Columbia under the Shell brand as well as through unbranded wholesalers.
Motiva’s refineries have been optimized to run on the medium-density crude oils Saudi Arabia exports, and the joint venture remains one of the largest importers of Saudi oil, according to the US Energy Information Administration.
Saudi Aramco is hoping to replicate the same sort of strategic downstream integration in China’s fuel market.
The company’s chairman said recently that Saudi Aramco is in advanced talks to invest in refineries in China and the company is also in talks with CNPC and Sinopec about joint investment opportunities in refining, marketing and petrochemicals.
Saudi Aramco has also defended its market share through skilful and competitive marketing of crude to independent refiners in the US, including Valero, Phillips and PBF Energy.
Aramco prices competitively via monthly adjustments to official selling prices linked to regional benchmarks designed to protect market share and target sales volumes.
The company also stresses its importance as a reliable supplier and strategic partner for refiners. Unlike some rivals, Aramco does not rely on the spot market to place its oil.
Exports are almost all sold to refiners on term contracts and protected by destination clauses which limit secondary trading in Aramco crude.
Historic ties, downstream integration, strategic marketing relationships and competitive pricing have all helped Saudi Arabia to maintain its share in the US market, which is important for both commercial and political reasons (“Texas refinery is Saudi foothold in US market,” New York Times, 2013).
The company has also benefited from a good dose of luck in that its crude is quite distinct from shale, a good fortune that has not been shared by producers in West Africa.
Saudi Aramco has similar strategic ties to refineries in Japan and South Korea. Now it wants to build them in China as well to protect the company’s long-term future.
The importance of these relationships is one reason why Saudi officials continue to stress their determination to protect their market share and refuse to cut production to support prices unless rivals follow suit.
Russia, Iran and Iraq are the most direct competitors for the crude grades that Saudi Arabia markets so their willingness to match output cuts as part of any agreement is a priority for the Kingdom.
— John Kemp is a Reuters market analyst. The views expressed are his own
German industry groups warn US on tariffs before Trump-Juncker meeting
- Washington imposed tariffs on steel and aluminum imports from the EU, Canada and Mexico on June 1
- Trump is threatening to extend them to EU cars and car parts
BERLIN: German industry groups warned on Sunday, before European Commission President Jean-Claude Juncker meets US President Donald Trump this week, that tariffs the United States has imposed or is threatening to introduce risk harming America itself.
Citing national security grounds, Washington imposed tariffs on steel and aluminum imports from the EU, Canada and Mexico on June 1 and Trump is threatening to extend them to EU cars and car parts. Juncker will discuss trade with Trump at a meeting on Wednesday.
“The tariffs under the guise of national security should be abolished,” Dieter Kempf, head of Germany’s BDI industry association said. Juncker should tell Trump that the United States would harm itself with tariffs on cars and car parts, he told Welt am Sonntag newspaper.
The German auto industry employed more than 118,000 people in the United States and 60 percent of what they produced was exported. “Europe should not let itself be blackmailed and should put in a confident appearance in the United States,” he added.
German Economy Minister Peter Altmaier told Deutschlandfunk radio on Sunday he hoped it was still possible to find a solution that was attractive to both sides. “For us, that means we stand by open markets and low tariffs,” he said
He said the possibility of US tariffs on EU cars was very serious and stressed that reductions in international tariffs in the last 40 years and the opening of markets had resulted in major benefits for citizens.
EU officials have tried to lower expectations about what Juncker can achieve, and played down suggestions that he will arrive in Washington with a novel plan to restore good relations.
Altmaier said it was difficult to estimate the impact of any US car tariffs on the German economy, but added: “Tariffs on aluminum and steel had a volume of just over six billion euros. In this case we would be talking about almost ten times that.”
He said he hoped job losses could be avoided but noted that trade between Europe and the United States made up around one third of total global trade.
“You can imagine that if we go down with a cold in the German-American or European-American relationship, many others around us will get pneumonia so it’s highly risky and that’s why we need to end this conflict as quickly as possible.”
Eric Schweitzer, president of the DIHK Chambers of Commerce, told Welt am Sonntag the German economy had for decades counted on open markets and a reliable global trading system but added: “Every day German companies feel the transatlantic rift getting wider.”