Middle East petrostates moving beyond crude oil

Middle East petrostates moving beyond crude oil

Middle Eastern countries are weaning themselves off crude oil production and pouring more resources into manufacturing value-added petroleum products, which could lead to new sources of procurement for resource-poor nations like Japan. Dubai's $1.5 billion Laffan Refinery 2 officially opened for business on Monday. Qatar Petroleum is picking up 84% of the tab, while the rest is financed by foreign concerns. Qatar needs international partners for such specialized technology, Qatar Petroleum CEO Saad Sherida al-Kaabi said at the ceremony marking the facility's completion. He added that the state-owned company intends to continue the joint venture as long as it is a win-win.

French energy company Total holds a 10% equity stake while Japanese peers Cosmo Energy Holdings and Idemitsu Kosan each own 2%. Rounding out the total are Japanese trading houses Mitsui & Co. and Marubeni, each controlling a 1% stake.

The facility will refine 146,000 barrels of condensate petroleum a day into kerosene, diesel fuel and naphtha. The crude originates from a large natural gas field off the coast of Qatar.

The same four Japanese companies have also bought into Laffan Refinery 1, and the addition of the second site doubles the output of Qatar's core refineries. Qatar Petroleum is considering various options for future expansion, said al-Kaabi.

The post-crude future

Similar scrambles to build new refineries are afoot in Kuwait, Iran, Oman and other places in the region. But Saudi Arabian Oil Co., or Saudi Aramco, is in a class of its own in these activities. It built two refineries in 2014 that boast total daily capacity of 800,000 barrels. Now the energy giant is constructing a 400,000 barrel-a-day refinery in Jizan, a city in southwest Saudi Arabia.

Saudi exports of oil-based products came to 1.15 million barrels a day in 2015, jumping by 20% from 2010 levels. Saudi Arabia graduated from an importer of diesel to an exporter in 2013. Aramco CEO Amin Nasser said in January that the company is boosting capacity for petrochemicals and lubricating oil.

The Middle Eastern petrostates are diversifying from crude production in the face of the recent slump in oil prices. The current $50 range is only around half the level from two to three years ago. The countries aim to curb risks from market fluctuations by exporting refined products, a security analyst said. Saudi Deputy Crown Prince Mohammed bin Salman laid out an economic reform vision to 2030 that seeks to reduce the kingdom's reliance on crude oil revenues.

Japan imports more than 80% of its petroleum from the Middle East, and the diversification trend presents good business opportunities for Japanese energy groups. The Qatari government strongly pursued Japanese firms for the Laffan expansion because they possess advanced design capabilities and management knowhow. Mohammad Ghazi al-Mutairi, CEO of Kuwait National Petroleum Co., also regards Japanese firms highly for their technological expertise.

Existing connections are also expected to deepen. Idemitsu has transferred technology to Kuwait, and this likely helped it bring KNPC into an oil refinery and petrochemical venture in Vietnam. Those facilities also process Kuwaiti crude. 

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