Over the next decade, Saudi Aramco is planning to expand its refining capacity to eight million barrels per day.
"Over the next decade, our total global refining capacity is expected to approach eight million barrels per day," Khalid Al-Falih, the Aramco's CEO, said in his speech at the signing ceremony of the refining joint venture with Sinopec at the giant Ghawar Center in Dhahran recently.
Now this is significant and it has its repercussions too!
Saudi Aramco, the world's most integrated oil company, is undergoing a major metamorphosis. It is evolving, if not rushing, into a more diversified company.
It is targeting to add value to the crude, converting it into refined products and sell that into the market.
Indeed these refined products would be used in domestic market too.
But at the same time, it would also make its way into international markets.
First indication of the change emerged early last year, when it was announced that Saudi Aramco was going to try its hand at product trading too.
And interestingly on Jan. 1 this year, almost coinciding with the announcement to expand the refining business of the company, the unit created within Saudi Aramco to handle product trading became operational.
This was another indication of the direction Saudi Aramco was taking — of an increasing role of products in company's portfolio. The slate is changing!
And then the buck doesn't stop there. Aramco, to the discomfort of some, is also venturing into petrochemical industry.
It is no more contented being just the feedstock supplier to the burgeoning petrochemical industry of the Kingdom. Its petrochemical plans stand tall.
Saudi Aramco is targeting to be among the top three in the sector in not too distant a future.
"We have said we are going to be a top three petrochemical company ... so we are going to grow by an order of magnitude from where we are today, and it will be a $60 billion business by the time we are done building this petrochemical company," Al-Falih said on the sidelines of the signing ceremony.
So besides refining, petrochemical route is another detour the company is embarking upon.
And the two are integrated too.
Saudi Aramco plans to integrate refining with petrochemical production.
Refineries would provide feedstock to its petrochemical units.
And this is in sharp contrast to the existing structure of the petrochemical industry in the Kingdom.
The current petrochemical structure in the Kingdom owes its existence to economical gas feedstock.
This provides tremendous competitive advantage to local petrochemical producers and almost the entire, existing industry structure is based on this advantage.
However, like every good thing ultimately comes to an end, this era is also coming to an end.
There is not much gas available now for the industry.
This is a reality, everyone admits.
With unconventional gas not feasible at the current price levels, the gas feedstock era seems coming to an end.
Local petrochemical producers have to look for other crutches. The gas advantage is slowly and gradually dissipating.
Hence in order to feed the ambitious petrochemical plans of Saudi Aramco, Al-Falih and his team are looking into refinery products to be the feedstock of their petrochemical plants.
Indeed this also meant that instead of just the commodity petrochemicals, as is the case just now, Aramco’s petrochemical portfolio is to have a number of specialized products too.
Indeed Saudi Aramco would continue to be a top energy provider. Even Al-Falih underlines it time and again.
But some of the crude being offered today, could henceforth be offered as products and not necessarily as just, pure, crude. This is itself is a reality too.
This fact in itself does not impact the market much.
Markets get their share in either form — crude or the products.
Ultimately, markets need products and not crude.
So until this point, everything seems okay.
Further with Aramco now expanding rapidly into refining, another interesting aspect needs to be underlined too. The new Aramco refineries are mostly to process heavy crude — for which there are not too many takers in the market place.
So this in fact should soothe the markets — rather than making them nervous and itchy.
But indeed not all the refinery products would enter the markets as they are.
Rather there would be further value addition. And some would be transformed into petrochemicals too.
What does this all mean to the global crude energy demand supply balance?
Indeed some of these refined products would be used as a feedstock for the upcoming petrochemical industry and hence would not be available to be used as fuel.
Would that tighten the crude demand supply balance down the road — once the projected plants are on stream? This is a question that continues to haunt some.
And perhaps the answer lies in having a look at the broad picture.
The energy world is changing rapidly.
The current demand structure is falling apart.
North America, many now insist, may not be dependent on OPEC, for its crude requirements, in a decade or so. New frontiers of energy continue to spring up all around.
Tight oil, Shale gas, the finds in Antarctic, the recent Norwegian finds in Barents Sea, the growing exports from Brazil, the tar sand, are all literally changing the face of the industry.
And coupled with the growing emphasis on efficiency, the industry is in a flux — to say the least.
Things have changed drastically over the last few years.
This region would still need to supply crude, yet may not be in the volumes as is required today.
The call on Saudi oil, who knows, could also undergo a massive transition in the coming decades.
Already the US is no more the largest Saudi buyer.
China and Asia are the new emerging markets. And all this has its connotations too!
A revolution is in the making.
A new Energy World Order is evolving and Al-Falih is also looking at it — rather carefully.
He has to plan now — for tomorrow. And this is what Aramco seems to be doing And this is what Aramco seems to be doing now — preparing for what could now be termed as the post oil era.
