The Motiva refinery is the leading contender to purchase the Lyondell Basell Industries refinery in Houston. Motiva is the largest refinery in the U.S. and was, until recently, co-owned by Saudi Aramco and Shell. By April, 2017, Motiva will be fully controlled by Saudi interests as will any properties it acquires.
Bidding for a Refinery in Houston
The Lyondell refinery is likely a bargain for Saudi Aramco, as the refinery has suffered a series of fires and power-outages that have stalled operations of late. It is clearly in need of repair, and its Dutch owner, Lyondell, has been looking sell. The refinery mostly supplies feedstock for Lyondell’s nearby petrochemical plants and processes high-sulfur crude oil, such as that produced in Canada’s tar sands. It is unlikely much of this business will change if Saudi Aramco’s Motiva refinery purchases it.
However, the potential purchase provides insight into Saudi Aramco’s strategic vision for its burgeoning refining and petrochemical sector and indicates that Saudi Aramco is looking to continue expanding its overseas refining and petrochemical business.
Saudi Aramco and Shell Refinery Split
Last March, when Saudi Aramco and Shell announced they would end their co-ownership of Motiva, I speculated that the split might indicate that the Saudis were transitioning away from the joint-venture model they have favored for refining and petrochemical projects and moving towards sole ownership. Traditionally, the Saudis have entered new industries with experienced partners as co-owners. They have learned the business and then ultimately bought out their partners. This has been the Saudi strategy since the 1930’s, and Saudi Aramco took this approach with their upstream oil business and with their shipping industry before they began this strategy with refining.
In the Motiva split, Saudi Aramco retained the main Motiva refinery and the vast majority of distribution terminals. Shell is walking away with the smaller refinery and a fraction of the distribution terminals. This latest move, making an offer on a refinery in Houston, indicates that Saudi Aramco is confident in its ability to successfully run profitable refining and petrochemical plants and plans to expand its presence in the United States.
Saudi Presence Worldwide
In addition to Motiva, Saudi Aramco currently partners with multiple other companies to run refineries and petrochemical facilities around the world. These include Dow Chemical (Sedara Chemical Co.), Sinopec (Yanbu Refinery and Fujian Refining), Total, (SATORP refining and petrochemical plant), and ExxonMobil (Fujian Refining). Likely, Saudi Aramco will follow a strategy similar to what it has pursued with Motiva in areas where the country’s laws permit it to expand its ownership stake. Also look for Saudi Aramco to expand its downstream operations in regions with emerging industrial growth, such as India, in the coming years.