How Saudi Arabia successfully defended its US oil market share

31/01/2016 04:24 AST

Saudi Arabia has successfully defended its share of the US oil market even as rising domestic production from shale and growing pipeline imports from Canada have cut seaborne imports from other countries.

Saudi crude exports to the US have remained relatively constant at around 1.2 million barrels per day since 2009, even as tanker arrivals from other countries have halved from 6 million to 3 million bpd.

Saudi Arabia has have defended its market share through a combination of luck, strategic relationships and skilful marketing, a model the kingdom is now seeking to replicate in fast-growing fuel markets such as China.

CRUDE OIL QUALITY
Saudi Arabia has been fortunate in that the oil produced from shale is not in direct competition with its own crude exports.

Shale oils are very light with a density of only 780-825 kg per cubic meter. The crude Saudi Arabia exports to the US is much heavier, with an average density of around 860 kg per cubic meter.

Refineries are highly selective about the crude they process since it has a big impact on how efficiently and profitably they can operate as well as problems with equipment fouling and product quality.

Most US refineries have therefore opted to make space for increasing shale production by cutting the amount of other light crudes they buy from countries in West Africa and Latin America.

Imports of medium and heavy crudes from Saudi Arabia and other countries around the Arabian Gulf have not been affected to anything like the same extent.

MOTIVA ENTERPRISES
Saudi Arabia’s oil exports have also been protected by the long-standing strategic relationships the country has with refiners and marketers in the US.

Saudi Aramco, which handles the marketing of Saudi Arabia’s crude, is the successor to the Arabian American Oil Company, a partnership between Chevron, Texaco, Exxon and Mobil established in the 1930s and 1940s.

Chevron (which later acquired Texaco) and Exxon (which acquired Mobil) remain some of the largest importers of Saudi crude into the US, according to customs records.

In 1988, Saudi Aramco bought a 50 percent stake in Texaco’s refining and marketing operations in the eastern US and on the Gulf Coast, which was named Star Enterprises (“Saudi Arabia, Texaco join forces” Los Angeles Times, 1988).

In 1997, Royal Dutch Shell joined the joint venture, subsequently renamed Motiva. When Chevron merged with Texaco in 2001, Texaco’s interest in the combined refining and marketing operations was sold to Shell and Saudi Aramco and reorganized as a 50:50 joint venture between them.

Motiva operates three large refineries in Louisiana and Texas (Convent, Norco and Port Arthur) with a combined refining capacity of 1.1 million bpd.

Motiva also as a network of refined product storage terminals across the eastern US and markets gasoline, diesel and other refined products in 26 states and the District of Columbia under the Shell brand as well as through unbranded wholesalers.

Motiva’s refineries have been optimized to run on the medium-density crude oils Saudi Arabia exports, and the joint venture remains one of the largest importers of Saudi oil, according to the US Energy Information Administration.

Saudi Aramco is hoping to replicate the same sort of strategic downstream integration in China’s fuel market. The company’s chairman said recently that Saudi Aramco is in advanced talks to invest in refineries in China and the company is also in talks with CNPC and Sinopec about joint investment opportunities in refining, marketing and petrochemicals.

Arab News