Saudi Aramco restructures downstream business

State-controlled Saudi Aramco has announced plans today to restructure its downstream business as it seeks to deepen its push further down the value chain.

The company's new "operating model" will involve reorganising its downstream operations into four commercial units by the end of the year: fuels, chemicals, power and a fourth unit that groups together pipelines, distribution and terminals. The fuels unit will include refining, trading, retail and lubes.

At the end of 2018, Aramco had a stake in 4.9mn b/d of refining capacity globally. Its net refining capacity was 3.1mn b/d, making it the kingdom's largest oil customer, consuming 38pc of Saudi crude output in 2018. Aramco has since added another 400,000 b/d of refining capacity with the commissioning of the new Jizan refinery on the Red Sea coast, and it is working on a raft of other plans to boost its international refining footprint and capture new demand.

Aramco's downstream reorganisation appears aimed at integrating its stable of subsidiaries following the recent acquisition of a 70pc stake in petrochemicals giant Sabic from the Saudi government. The reorganisation is "designed to enhance Aramco's competitiveness and support its vision to be the world's pre-eminent integrated energy and chemicals company", the company said.

Another driver is Riyadh's new tax regime, which requires Aramco to "consolidate its downstream business under the control of one or more separate, wholly owned subsidiaries", according to the company's prospectus released ahead of last year's initial public offering. Since 1 January this year, the government has applied a 20pc general corporate tax rate to Aramco, the same rate used for downstream businesses, rather than a 50-85pc tax rate used for domestic oil and hydrocarbon production companies. Aramco must consolidate the downstream business before the end of 2024 or it will face retroactive taxes at the higher rate.

Despite Aramco's ownership of a majority stake in Sabic, the petrochemicals giant will remain separately listed on the country's Tadawul stock exchange. Moreover, Sabic has said it will continue to operate within its legal regulatory framework and maintain its governance practices. This raises questions about the extent to which Sabic can be integrated with Aramco, which also has a listing on the Tadawul by virtue of around 1.5pc of its shares being publicly traded.

In January 2019, Aramco restructured its in-house chemicals trading arm and set up a new subsidiary, Aramco Chemicals (ACC), which handles the sale and distribution of polymers and chemicals produced by Aramco joint ventures such as its Saudi-based PetroRabigh partnership with Japan's Sumitomo. Complicating the integration further, PetroRabigh has its own listing on the Tadawul stock exchange, given 25pc of its shares are publicly owned.

ACC also handles sales from international joint ventures, such as S-Oil in South Korea, and it is expected to market polymers from Aramco's joint venture in Malaysia with the country's state-owned oil firm Petronas. New polymer products from the Pengerang complex are expected to hit the market later this year.

By Samira Kawar and Adal Mirza