It is widely known that strong economic partnerships encourage investment toward local businesses and projects and increase the availability of resources for these companies. Therefore good economic alliances can greatly spearhead a country’s business sector. Nevertheless, it is vital that such partnerships be strategic ones that open up new markets within the state and create new methods for economic growth. Furthermore, it is these strategic relations that promote healthy competition between both national and international corporations, which in turn presents consumers with the highest quality goods and services. These strategic relations are vital for emerging economic powerhouses such as India and China since it presents them with the opportunity to attract more foreign investment. This foreign investment does not only come in the form of monetary capital, but also in the prospect of foreign partners sharing their expertise and know-who. As a result, these economies can adopt modern and flexible strategies that will help them become tomorrow’s big economic players.
As a world leader in energy production, Saudi Arabia is engaged in intensive international diplomatic and economic efforts to maintain its strategic relations with several states, especially those that can be classified as emerging economies. First and foremost, Saudi Arabia seeks to provide these economies with oil to meet their hydrocarbon energy needs; moreover Saudi Arabia delivers security for pipelines around the world to keep oil flowing. Saudi Arabia is also using its global position in the energy market to secure long-term outlets for its crude oil. Meeting the growing energy demand in emerging strategic markets is one of the reasons it is increasing fuel and petrochemical production. The other reason is to mitigate the risk of a slowdown in oil consumption. These new circumstances have encouraged Aramco to pursue a new strategy of expanding the scope of its operations to other places around the world, particularly emerging economies.
NEW EMERGING INDUSTRIES
Alliances and strategic partnerships are not new to the oil industry; in fact they are what shaped the industry to what it is today and helped make it prosperous. Furthermore, the growing demand for petrochemicals gives Aramco the opportunity to come up with a long term strategy to prevent scenarios of a slowdown in oil demand. The best way to do this is to form new strategic alliances with new petrochemical industries. The strategic partnerships in the refining and petrochemical business sector are aimed initially at enhancing the value of hydrocarbon resources, including the establishment of a global petrochemical industry and the expansion of downstream operations. The move to convert crude oil to chemicals will help create a new sector for demand for crude oil. Examples of such alliances that the Aramco has built include the one with Sadara Petrochemicals and Petro Rabig. Thanks to these efforts, Aramco has grown from producing 5 million oil barrels a day to 8-10 million barrels of oil a day. Moreover, Aramco is working toward shifting to petrochemical production by 2030.
DIVERSIFYING THE ENERGY MARKET
Saudi Arabia, through its national oil company Aramco, has a history of strengthening its strategic partnerships in downstream operations particularly in the United States market in its joint venture with Motiva, which recently terminated its partnership with Royal Dutch Shell. Furthermore, Aramco is looking to build a complex at the Port Arthur refinery in Texas, which will produce 603,000 oil barrels a day, and 26 distribution stations. Aramco has also established a strategic partnership with the Dow Chemical Company through the Sadara Chemical Company, which is situated at the industrial city of Jubail, this deal is worth around 20 billion dollars and its aim is to produce new petro-products. On the local level, Aramco has signed a 5 billion dollar deal with Total to build a petrochemical complex in Jubail. Another deal with the Japanese company Sumitomo resulted in the10 billion dollar petrochemical complex built in Rabigh in 2009, thus helping Saudi Arabia secure its leadership in the petrochemical industry. Aramco also aims to be the primary provider of petrochemicals and oil to the emerging economies of China and India. Therefore, Aramco has been making investments in both countries and it is such investments and partnerships that have promoted energy security in China. The shift in demand toward petrochemicals has encouraged Aramco to move fast toward changing its business strategy. As a result, chemicals now account for about 10% of its revenues and profits. Through strategic and economic partnerships, Aramco seeks to secure Saudi oil markets through refining, petrochemicals and marketing services.
STRATEGIC PARTNERSHIP WITH CHINA
King Salman’s 2017 visits to some Asian states have played an important role in attracting direct foreign investment in Saudi Arabia. These trips also highlighted the demand many of these states have for Saudi oil and trade. Moreover, the King displayed Saudi Arabia’s desire toward providing these devloping Asian states with oil and petrochemicals. Historically, Saudi Arabia has been the main oil exporter for China, Japan and Indonesia. It should also be noted that China represents a vital startegic partnership for Saudi Arabia, as the former is one of the world’s largest consumers of oil, while the latter is one of the world’s largest producers of oil. Furthermore, since 20 percent of the oil consumed in China comes from Saudi Arabia, it is only logical that the Saudis seek deeper strategic relations with the Chinese. On a more specific level Saudi Arabia should work more closely with China’s oil and chemical industries. Saudi Arabia also strives for regional economic growth and energy security, as such Aramco Asia has helped to establish better investment relations between China and the US, which incidentally is one of the goals for the Saudi Vision 2030 plan. Saudi Arabia and China have also created many joint economic projects and business ventures, among which are joint projects by Saudi Arabia petrochemical company SABIC and Chinese petrochemical company Sinopec. These ventures aim to establish many petrochemical projects in both Saudi Arabia and China. During his trip, the King also visited the joint Saudi-Chinese petrochemical complex in the Chinese city of Tianjin.
One of the joint downstream projects announced recently in China is the construction of a refinery with PetroChina in Yunnan Province capable of producing 260,000 barrels of oil a day. Saudi Arabia also agreed to build a strong chemical business center in Xiamen, Fujian Province. Additionally, Aramco has made plans with China’s Norcino to build a 300,000-barrel Chinese refinery Aramco also signed an agreement to invest in another refinery and petrochemical project in eastern China, specifically in Qingyang Province, which is projected to produce 400,000 barrels of oil per-day. This refinery is planned to start operations in late 2018.
STRATEGIC ALLIANCE WITH INDIA
As India is the third largest consumer of oil, Aramco has endeavoured for new investment and development plans for the sub-continent. Accordingly, Aramco has joined the Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum in a project, which aspires to build a refinery with petrochemical facilities in the Indian West Coast. The project is a 44 billion dollar investment venture between Saudi Arabia’s Aramco and Abu Dhabi National Company (ADNOC) to invest in the Ratnajeri Refining and Petrochemical Complex in the state of Maharashtra in western India, in which both companies covered 50 percent of the funding for the project. This is one of the largest energy and petrochemical projects in the world, and is projected to produce 1.2 million barrels of oil a day and the petrochemical facilities are estimated to produce 18 tons a year. India is one of the fastest-growing economies and has an increasing demand for oil and its derivatives.
ARAMCO’S PETROCHEMICAL VISION
According to the World Energy Council, the future demand for petrochemicals will grow to become three times larger than that of crude oil, it will also make up half of the global energy demands by 2050. It is for this reason that Aramco has been reshaping its business startegy to fullfil the eventual global demand for petrochemicals. Aramco also views petrochemicals as the future extingusiher of the world’s demand for oil. Consequently, Aramco wants to produce between 8 -10 million barrels of petrochemicals a day, while also striving to double its petrochemical production by 2030. Aramco has also signed a 20 billion dollar deal with SABEC to transform its crude oil factories into primary petrochemical ones by 2025, with this deal it is estimated that 400,000 barrels of oil a day will be converted into petrochemicals. Another 9 billion dollar project has also been agreed between Aramco and Total, but this one is a research venture looking for modern and more efficient methods of turning crude oil into petrochemicals. These projects and agreements display Aramco’s commitment toward steering away from crude oil and toward petrochemicals, thus the companies vision ensures that it will stay a leader in the energy sector for the foreseeable future.