From The New York Times
Saudi Arabia has offered to buy the LyondellBasell oil refinery on the ship channel in Houston. Valero and two Canadian companies are also interested.
HOUSTON — The Saudi national oil company is making a bid to significantly expand its operations in the United States at a critical moment in the always uneasy relations between the United States and Saudi Arabia.
The company, Saudi Aramco, aims to strengthen its position on the Gulf of Mexico coast by buying a large oil refinery in the Houston Ship Channel that LyondellBasell is putting up for sale.
And despite geopolitical tensions between Riyadh and Washington, Saudi Aramco sees the potential acquisition as a way to shore up its exports at a time of erosion in the oil business on which the Saudi economy is still largely reliant. Because of plunging prices, the value of Saudi oil sales has shrunk in recent years. And Saudi Arabia’s archrival, Iran, is becoming a more potent commercial competitor now that it is exporting substantial quantities of crude.
Four years ago Saudi Aramco completed a $10 billion expansion of a giant oil refinery in Port Arthur, Tex., in a joint venture with Royal Dutch Shell called Motiva Enterprises. The converted plant is now the biggest producer of gasoline, diesel and other petroleum products in the United States.
This time, Saudi Aramco wants to do a deal on its own. But its negotiations with LyondellBasell, a Dutch company, come as Congress is moving to allow families of victims of the Sept. 11, 2001, terrorist attacks to sue Saudi Arabiafor supposed ties between government officials and the terrorists, most of whom were Saudi citizens. The Obama administration has delayed its threatened veto of the measure, although an override is possible.
Saudi officials have denied any role in the attacks and have threatened to sell $750 billion in United States assets, including Treasury securities, held by the Saudi government if the congressional measure moves forward.
But energy experts say the quiet bid by Saudi Aramco is designed to further protect its share of the United States oil market, even as Washington and American oil companies continue efforts to wean the country off foreign oil.
Saudi Aramco did not respond to questions about the bidding. A spokeswoman for LyondellBasell said
Saudi Aramco is in competition for the Lyondell refinery with Texas-based Valero, as well as two big Canadian companies, Suncor and Cenovus.
Energy experts who have been briefed on the negotiations say that Saudi Aramco is a leading contender and that the price for the refinery could be as much as $1.5 billion.
The Lyondell plant has a capacity to refine nearly 270,000 barrels a day of crude, which could increase Saudi Aramco’s capacity to refine its oil on the Gulf coast by about 50 percent. The refinery produces not only gasoline and other fuels, but also can also produce feedstocks for petrochemical production.
Imports of Saudi crude have been dropping in recent years, from 1.8 million barrels a day in 2003 to 1.1 million barrels a day this year, largely because of the shale drilling boom in Texas and North Dakota.
“It looks like they are doubling down on their U.S. relationship,” said David L. Goldwyn, who was the State Department coordinator for international energy affairs in the first Obama administration.
“It makes economic sense,” Mr. Goldwyn said, “because they want to be a global petrochemical power. And it makes political sense because they see a long-term relationship with the U.S. as the kind of strategic assurance they will be seeking from the next administration.”
The Saudi effort is part of an initiative to expand its refining empire as a way to protect its share of the global market.
Saudi Aramco is also negotiating with C.N.P.C., the Chinese state oil company, for the joint construction of a giant refinery in southwestern Yunnan province. It has investments in other refineries in Japan, China, South Korea and Indonesia.
The effort to focus more financial firepower on global refineries is also part of a larger strategy to diversify investments in areas other than drilling for crude oil on the Arabian Peninsula. A public offering of at least some refineries is being considered to bolster Saudi Aramco’s financial position, even as the company is making a concerted effort to expand production of refined products, including gasoline and diesel.
The Lyondell refinery, one of the largest in the United States, is designed to process low-quality, high sulfur crude oil. In recent years it has mostly processed Mexican crude and Canadian heavy oil from oil sands, but it could just as easily process low grade Saudi crude that refineries in Europe and Asia are not designed to refine.
United States refineries get a competitive edge on world markets from the low costs of American natural gas that produces power for the plants.
The possible purchase of the Lyondell refinery comes at a time when Saudi Aramco and Shell are going their separate ways, ahead of the planned disbanding of their Motiva joint venture early next year. The two companies are still working out the details, but Saudi Aramco is poised to gain complete control over the Port Arthur refinery as well as a chain of gasoline stations and storage facilities, while Shell will take over two smaller refineries in Louisiana — Convent and Norco — that were jointly owned.
Middle East oil experts say the impending loss of a piece of those two refineries would make the acquisition of Lyondell refinery all the more essential to maintain Saudi Aramco’s dominant market position along the Gulf of Mexico coast.
“Aramco has a keen interest in maintaining its downstream market share in the U.S.,” said Sadad I. al-Husseini, a former Saudi Aramco executive vice president. “The Lyondell refinery, because of its size and location will go a long way towards sustaining this strategy after the breakup of Motiva and the loss of the Convent and Norco refineries.”
Senior officials in the Saudi government have said they would like to sell a small stake in Saudi Aramco to investors over the next few years, and its refineries are among its assets that look most likely to be offered to investors.
While investors may view refineries in Saudi Arabia as too risky because of political turbulence in the Persian Gulf, refineries in the United States could be seen as attractive investments. The proceeds from those public offerings could then go into expanding and modernizing petrochemical operations in the kingdom itself, energy experts said.
“It could be a move to strengthen their downstream asset base as part of their ongoing restructuring and I.P.O. plans,” said Badr H. Jafar, president of Crescent Petroleum of the United Arab Emirates.
Nevertheless, some energy and Middle East experts say the timing of the Saudi bid is somewhat surprising, coming just before a United States presidential election and given the kingdom’s shaky reputation among the American people. But they say it shows that Saudi Arabia still looks to the United States as an ally in economic and political affairs, as well as a good place to invest.
“Obviously it’s a real indication that they don’t have concerns about the U.S. as a safe haven for investment,” said Amy Myers Jaffe, an expert on Middle East energy at the University of California, Davis. “It’s an opportunity purchase, not a necessity, so it shows a real confidence in the U.S. market.”
