Kingdom consolidating its role as key crude supplier to Asia

JEDDAH: China remains the key market for Middle Eastern exporters and for most of them shipments to the country remain robust, according to researchers.
Middle East crude will keep its Asian stronghold in the long run, the latest edition of APICORP Energy Research says in its latest edition.
The APICORP Energy Research is a monthly publication issued by the newly established Energy Research Department.
GCC countries will look to expand on their existing downstream portfolio in Asia, while Iran, Iraq and the UAE rely on attractive upstream concessions involving Asian partners, stated the report.
But global competition remains stiff, the researchers pointed out.
Producers continue to channel their exports to the East and the Middle East will need to adopt more creative strategies to secure its market share, said the report.
Competition for Asian markets is intensifying. But the growing presence of Russian, West African and South American oil in Asia should not be exaggerated, says the latest edition of APICORP Energy Research.
Short-term gains for such exporters can be expected as trade patterns continue to evolve and Asia seeks to diversify its supply sources. But this should not be seen as a threat to the Middle East’s exporters or their position in Asia’s ever-growing market, it added.
Middle Eastern producers such as Saudi Arabia, the UAE and Kuwait sit on some of the world’s largest reserves, operate some of its cheapest wells and have a historical record of being a reliable source of supply despite many geopolitical shocks.
As Asian oil demand continues to grow and as current cuts in capital expenditure start affecting supply growth outside the Middle East, the key Middle Eastern exporters such as Saudi Arabia, Kuwait, UAE, Oman, Iran and Iraq — some with very ambitious plans to increase productive capacity — will consolidate their role as the main suppliers to Asia.
But in face of shifting global trade patterns and tougher competition, Middle Eastern oil exporters will continue to resort to creative strategies to press home these advantages and retain their market share in Asia. Iraq and Iran will rely on competitive pricing and attractive upstream contracts to entice Asian players.
For Kuwait and Saudi Arabia, where the upstream sector is closed to foreign investment, securing a large downstream portfolio in Asia is part of a long-term strategy to consolidate their share in a key market.
While competition is proving to be tough, strategies currently being pursued can result in long-term gains and further consolidate Asian-Middle East energy ties, said the report.
Downstream strategies in Asia have played a pivotal role, providing an outlet for GCC oil in this key region. This is particularly the case for Saudi Arabia.
In China, the Kingdom is a partner in the 240k barrel per day Fujian refinery that was configured to process Saudi Arab Light.
In Japan, Saudi Arabia is a shareholder in the 400k barrel per day Showa Shell refineries.
In South Korea, the Kingdom has a stake in S-Oil’s 670k barrel per day refinery. All told, it gives Saudi Aramco access to Asian refining capacity of roughly 1.3m barrel per day. This may yet increase: Saudi Aramco may buy a stake in a Chinese National Petroleum Corporation (CNPC) refinery along with retail assets. In India, it has signed preliminary deals covering future possible downstream partnerships, according to the APICORP report.
Saudi Aramco has also leased storage tanks in Japan’s Okinawa port, where the company has reportedly stored roughly 6 million barrels. This will allow greater flexibility to supply the Asian market when demand gaps appear, said the report.
It added that investment in upstream assets is also part of Middle East producers’ strategy to secure their Asian customer base. The doubling of Iraq’s exports to China in the past three years is in large part due to Chinese investment in the country since 2007. This has included whole ownership of assets or equity investments; and has provided China with 470k barrel per day of equity oil.