Saudi Arabia oil refining set to increase

06 September 2011

National oil companies in Saudi Arabia look to fill the void international oil firms have left behind in refining capacity

As Saudi Arabia looks to add value to its huge oil reserves, the production of refined hydrocarbons such as gasoline and jet fuel is the most obvious method of achieving this goal.

The kingdom’s domestic refining capacity has risen steadily over the past decade and the imminent arrival of the Jubail and Yanbu Export Refineries means it is going to rise further still in the next two years.

Saudi Aramco’s recent refining strategy has been to increase its domestic capacity, especially of heavy oil.

As well as building new facilities, many of the older refineries are undergoing refurbishment to enable them to process heavier oil and improve the quality of their products, so they meet tough new legislation across the world in regards to the sulphur content of fuel.

Obviously, such a strategy involves a lot of capital expenditure, but the fact is that the figures do add up.

When oil prices are high, refining margins can reach well over $10 a barrel, which means that a refinery with a capacity of 400,000 barrels a day could be looking at revenues in excess of $1bn a year.

Even taking refined oil products’ slightly higher transportation costs into account, this still makes increasing domestic refining capacity a good choice.

While many of the international oil companies are starting to move away from refining, there are more and more opportunities for the region’s national oil companies to inhabit the space that is being left vacant.

Saudi Aramco’s strategy is concentrated on the home front, but the future could see it becoming the global power player in refining.

With the days of cheap oil now probably behind us, it will be interesting to see what the Saudi oil major’s next strategy will be.

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