Competition with Aramco Inevitable
Saudi Arabian oil giant Aramco has released a series of investment plans since the beginning of this year in order to strengthen its oil refining and chemical business.
For instance, the company is going to acquire approximately 50 percent of Royal Dutch Shell’s shares in SASREF, a Saudi Arabian oil refining company, for US$630 million and acquire 25 percent of the oil refining and chemical business unit of Reliance, an Indian company, for more than US$10 billion. In addition, Aramco is planning to invest US$10 billion with China North Industries Corp. to build an oil refining and chemical complex in China. Last month, Aramco took over SABIC, the biggest chemical company in the Middle East, for US$69 billion.
South Korean oil refining and chemical companies’ concerns are growing under the circumstances. This is because they cannot avoid competition with Aramco, which has focused on upstream business models such as crude oil drilling and extraction, once the Saudi Arabian company enters the downstream market including the oil refining and chemical sectors.
Aramco’s aggressive market expansion is revolving around China and Southeast Asia, which are highly important markets for the South Korean companies. South Korean oil refining companies’ exports totaled US$46.7 billion last year, including US$8.6 billion to China, US$1.8 billion to Vietnam, US$1.3 billion to Indonesia and US$1.2 billion to Malaysia. Likewise, South Korean petrochemical product manufacturers’ exports to China accounted for more than 40 percent of their total exports, US$50 billion, last year, followed by those to Vietnam (US$2.1 billion), Indonesia (US$1.1 billion) and Malaysia (US$1 billion).
“Aramco, the largest shareholder in S-Oil, is increasing its presence in the Indian market as well, signaling even more competition with South Korean companies, and the South Korean oil refining industry is becoming increasingly dependent on Aramco with Aramco having recently acquired 17 percent of Hyundai Oilbank,” said an industry source, adding, “Aramco is likely to overwhelm South Korean companies if the latter’s current business models are maintained as they are.”