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Interview: Saudi Aramco still eyes growth in US refining, despite chill in bilateral ties

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Seeks US refining footprint of 1 million-1.5 million b/d

US assets politically and commercially strategic

London — Strained political relations with the US have not dampened Saudi Aramco's plans to expand its Port Arthur, Texas, refinery and to seek further acquisitions, according to a top official with the Saudi state oil company, adding the US remains a core strategic focus.

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"When you look at markets in the US, we look at the potential to grow," Abdulaziz al-Judaimi, Saudi Aramco's senior vice president for downstream, said in a recent interview. "Our business relationship within the US market has been long. We've been a very reliable supplier to the US market."

Through its Motiva subsidiary, Aramco owns the US' largest refinery -- the 603,000 b/d Port Arthur plant -- and is in the early stages of an ambitious $6.6 billion petrochemicals expansion there. Beyond Motiva, Saudi energy minister Khalid al-Falih has said Aramco is on the lookout for natural gas assets, having previously been linked to potential stakes in US LNG companies Tellurian and Sempra Energy.

But any deals could be complicated by a geopolitical chill between Saudi Arabia and the US in the wake of the October murder of US-based Saudi journalist Jamal Khashoggi. Though US President Donald Trump has stood by the kingdom through the international backlash, he has not been shy about criticizing it over its role in OPEC's price-bolstering oil production cuts.

The US Congress has taken a harsher line, withdrawing US support for the Saudi-led military campaign in Yemen, threatening sanctions over the Khashoggi murder and keeping so-called NOPEC legislation that would allow antitrust lawsuits against OPEC on the table.

The strained ties have played a factor in Saudi Arabia's much ballyhooed pivot towards Asia. Crown prince and de facto ruler Mohammed bin Salman recently concluded a tour of Pakistan, India and China, with several multibillion-dollar refinery and petrochemical deals announced.

The projects are seen as key to securing outlets for Saudi crude in demand-growing Asia, at a time when booming shale oil output has decreased the US' reliance on Middle East supplies. Saudi Aramco aims to eventually expand its global refining footprint to 8 million-10 million b/d from about 5.4 million b/d currently. Of the planned total capacity, about half is slated for Asia.

"Given that US is increasing its production, eventually demand for Saudi oil in US could be limited to the specific oil grades that it cannot produce and we are already seeing that American imports of Saudi oil has been declining structurally over the decades," said Mazen al-Sudairi, head of research for Riyadh-based Al-Rajhi Capital. "Thus it would make more sense for Saudi to pivot to Asia and rightfully so."

AMERICAN LEGACY

But Saudi officials remain adamant that even with their focus on Asia, they still see the US as a promising market, with plans to boost refining capacity there to 1 million-1.5 million b/d, though Judaimi declined to comment on any specific strategy for acquisitions or expansions.

"We have to be patient to see what the right deal is," he said. "We continue to assess opportunities."

Aramco got its foothold in the US refining industry in 1988 in a joint venture with Texaco that, after a series of acquisitions and mergers, led to the creation of Motiva, a 50-50 refining and marketing partnership with Shell.

In April 2017, the two companies parted ways, with Aramco taking full ownership of Motiva's Port Arthur refinery and turning the facility into one of the best performing refineries on the US Gulf Coast, according to several analysts. Judaimi said Port Arthur achieved a gross refining margin of $13-$14/b in 2018, highest among Aramco's downstream portfolio.

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The company also owns a network of retail stations in the US Southeast, as well as some research centers.

"Our investment in Motiva, after the separation from Shell, and adding the chemical expansion will testify to the fact that we look at the US as a market that is growing, is very profitable and has great upside," Judaimi said.

The petrochemical additions, which include a steam cracker and an aromatics complex, have a targeted commissioning of late 2022 or 2023, he said, and are part of Aramco's push to build out its plastics and chemicals production capabilities as the transportation fuel market matures.

Commercial reasons aside, Saudi Arabia has strategic bilateral considerations for maintaining its US assets, even in a more difficult political climate. Forged in oil flows and national security concerns on both sides, ties between the two countries go back decades, and Saudi Aramco maintains a lobbying presence in Washington through its subsidiary Aramco Services Co.

Ellen Wald, an energy consultant who recently authored Saudi, Inc., a book chronicling Aramco's history, noted that the company has held on to its US assets through more turbulent periods in US-Saudi relations, including after the September 11, 2001, terrorism attacks.

"At a time when America's energy security is more established and the US is the largest oil producer, Motiva, Aramco Services and Aramco's other US holdings give Aramco a place in the American energy ecosystem and a small part of the US economy overall," Wald said. "Aramco started as an American company and that legacy is still strong."

-- Herman Wang, herman.wang@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com