Already the largest oil refiner in the Middle East, Saudi Arabia is set to further boost its capacity. The Saudi Arabian Oil Company (Saudi Aramco), in cooperation with a number of international oil companies, is currently in the process of building two new major refineries, following the launch of another refinery in 2013. The projects should largely eliminate the country’s current need to import a number of key fuels, while also allowing for exports. Existing refineries have been investing in upgrades in order to be able to produce cleaner fuels, and Saudi Aramco is in the process of dramatically expanding capacity at the network of refining facilities it maintains outside of the Kingdom.
CAPACITY: Saudi Arabia had 2.52m barrels per day (bpd) of crude oil throughput refining capacity in 2013, according to BP’s “Statistical Review of World Energy 2014”, making it the largest refiner in the Middle East (ahead of Iran in second place with 1.97m bpd) with around 2.7% of global capacity. Available refining output has grown fairly slowly over the long term, with capacity standing at 1.81m bpd 10 years previously in 2002. However, the Kingdom’s refined products output is now growing at a significantly faster rate and is set to reach around 3.3m bpd by 2018, thanks in large part to several major projects that have recently come on-stream or are scheduled to do so in coming years.
DOMESTIC REFINERIES: The Kingdom has eight operational refineries. Four of these are wholly owned by Saudi Aramco, with a combined capacity of just over 1m bpd. The oldest, largest and most complex of these is the Ras Tanura refinery on the country’s Gulf coast, with 550,000 bpd of crude distillation capacity, the largest of any facility in the Middle East. The other four are joint ventures with foreign firms: Saudi Aramco Shell Refinery Company, located in Jubail; Saudi Aramco Total Refining and Petrochemicals Company (SATORP), also in Jubail; the Saudi Aramco Mobil Refinery Company (SAMREF), which is a joint venture with ExxonMobil in Yanbu; and the Rabigh Refining and Petrochemicals Company, a joint venture with Japan’s Sumitomo Chemical located in Rabigh on the country’s Red Sea coast.
The newest refining facility currently operating in the Kingdom is SATORP, the first of three planned new mega-refineries, which began producing and exporting refined products in September 2013 using crude from the Safaniya and Manifa fields as feedstock, with the latter field beginning production in 2013. The 400,000-bpd refinery is a joint venture between Saudi Aramco and French energy major Total, which respectively hold stakes in the project of 62.5% and 37.5%, having together invested around $14bn in its construction. ConocoPhillips had also previously been involved in the project, but withdrew in 2010 citing its increased focus on oil production.
Another 400,000-bpd facility, the Red Sea refinery in Yanbu Industrial City known as Yanbu Aramco Sinopec Refining Company, will be the next to come on-line, and in February 2014 the Ministry of Petroleum and Mineral Resources said the project would begin operations in the third quarter of 2014. The refinery is a joint venture between Saudi Aramco and Chinese energy firm Sinopec and will also source crude from the Manifa oil field.
REFINING FOR DEVELOPMENT: The last of the currently planned mega-refineries is another 400, 000-bpd facility being built by Saudi Aramco alone at Jizan, which when completed will produce petrol, ultra-low-sulphur diesel, benzene and paraxylene using medium and heavy crude. The project, which the authorities are hoping will help boost the economy of the comparatively underdeveloped Jizan region near the country’s border with Yemen, was initially due to come on-stream in 2016; however, in September 2013 Al Naimi said it would be finished within four years, appearing to indicate that its completion would be delayed until the following year. As of early 2014 construction on the project had yet to begin. Further increases in domestic capacity appear likely over the medium to long term. For example, in 2012 Al Falih said the firm intended to look at expanding the Ras Tanura refinery, already the region’s largest, “within the next decade or so”.
ACHIEVING SELF-SUFFICIENCY: The new facilities should help to make the Kingdom largely self-sufficient as regards fuel. Around three-quarters of refining output is currently consumed domestically and demand for some fuels outstrips local supply, in spite of the Kingdom’s enormous oil wealth. Saudi Arabia has therefore been reliant on imports for some key fuels, notably gasoil and petrol. In 2013 the Kingdom imported the largest volumes of fuel oil in at least a decade, at over 101,000 bpd, up 67% on 2012 figures. The refineries will also allow for more fuel exports, which should lead to higher profits compared to exporting the equivalent amounts of crude. This is particularly the case given that the new refineries opening up in the Kingdom will focus more than existing facilities on heavier grades of oil, which when exported as crude are sold at discounts compared to lighter and sweeter grades.
CLEAN FUELS: Alongside increasing capacity via the construction of new refineries, Saudi Aramco is also seeking to reduce the environmental impact of some of the fuels it and its partners produce at existing older facilities in order to comply with increasingly stringent local and international environmental regulations. The country’s three new refineries will also comply with the new standards. The Kingdom has adopted European fuel quality standards in some areas, bringing down the permitted sulphur content in petrol and diesel from 500 parts per million (ppm) to 10 ppm, and aims for all locally produced fuels to have near zero sulphur content by 2016.
In 2013 SAMREF brought a $2.5bn clean fuels project on-line in order to reduce sulphur levels in petrol. Levels of the element found in diesel produced at the refinery will also be reduced to 10 ppm following the planned launch during the project’s second phase in late 2015. “The Kingdom’s government has been very effective in enforcing environmental guidelines. They have made significant strides to reduce emissions and improve production efficiency,” Tom Walter, the CEO of ExxonMobil Saudi Arabia, told OBG.
Another clean fuels-focused upgrade is currently under way at Ras Tanura and due for completion in 2016. The project, which will also see the complex’s aromatics production capacity increased to around 1m tonnes per annum, will involve around $3bn of investment. A $1bn project at Saudi Aramco’s 124,000-bpd Riyadh refinery will also, among other upgrades, see the sulphur content of diesel reduced at the facility from the current 330 ppm to the new mandated levels. In addition to reducing the impact on the local environment, the projects will boost the export prospects for fuels once domestic capacity has increased enough to eliminate the country’s current fuel deficit.
Saudi Aramco is also undertaking a number of clean fuels research programmes, through its various research centres and the King Abdullah University of Science and Technology, which it established and funds. In addition to desulphurisation programmes, these also include research on how to reduce or capture carbon emissions (see analysis).
ACTIVITIES ABROAD: Saudi Aramco also has major refining operations abroad that together give it a foreign refining capacity of around 2m bpd, according to the US Energy Information Administration. This figure has grown in recent years and is set to increase further. In 2012 Khalid Al Falih, Saudi Aramco’s CEO, said that the firm intended to spend $90bn to bring its global refining capacity, including facilities abroad, up to 6m bpd within five years and to roughly double it to 8m bpd within a decade, with most of the growth coming from outside of the Kingdom.
In 2011 Saudi Aramco signed a contract with PetroChina to build a 200,000-bpd facility in Yunnan in south-west China, and the firm reiterated its commitment to the project in March 2013. Then, in 2012 Motiva, a US-based joint venture refining company owned by Saudi Aramco and Shell, completed a $10bn expansion project at its refinery in Port Arthur, Texas, making it the largest refinery in America with 600,000 bpd of capacity, up from 285,000 bpd. Motiva owns two other refineries in the US, both of which are in Louisiana. In January 2014 Saudi Aramco was reported to be planning to buy almost all of Hanjin Energy Company’s 28.4% stake in South Korea’s third-largest oil refiner, S-Oil Corp, for around $2bn.
Not all recent attempts by the company to expand its abroad capacity have been successful. In March 2013 Saudi Aramco and Indonesian oil firm Pertamina had signed a memorandum of understanding on the construction of an $8bn, 300,000-bpd refinery in Indonesia, but negotiations halted in October that year after Saudi Aramco failed to reach agreement with the Indonesian government on tax issues.
