Analysis: Aramco expands Korean refining influence

State-owned Saudi Aramco is deepening its influence over South Korea's downstream sector through a pair of acquisitions that could help cement its dominance in one of Saudi Arabia's most important export markets.

Aramco this week finalised an agreement to buy a 17pc stake in South Korean refiner Hyundai Oilbank for 1.37 trillion won ($1.21bn).

The Oilbank deal came just a few weeks after Aramco agreed to acquire a 70pc stake in state-owned Saudi petrochemicals producer Sabic for $69.1bn. Sabic has a 50:50 joint venture with SK Global Chemical, a unit of South Korea's largest refiner SK Innovation, which runs a 230,000 t/yr polyethylene (PE) plant in Ulsan.

The two deals establish deep business ties between Aramco and two of South Korea's four refiners. The Saudi company already owns a controlling interest in S-Oil, South Korea's third-largest refiner, meaning the only Korean refiner in which Aramco will not hold an ownership stake or partnership influence is GS Caltex, a joint venture between local conglomerate GS and Chevron.

South Korea is the world's fifth-largest crude importer and a leading producer of petrochemicals, meaning it offers important business opportunities for Aramco and other Saudi companies. The country is already Saudi Arabia's fourth-largest trading partner. Aramco established a beachhead in Korea in 2012 to market its products, connect with research outfits and liaise with engineering firms and other contractors that undertake projects for the company.

Buying into Oilbank could help Aramco boost its crude exports to South Korea, while enabling the refiner to leverage Aramco's global trading network. "The investment supports Saudi Aramco's broader downstream growth strategy, as well as providing long-term crude oil placement supply options and product offtakes as part of our trading business," Aramco's senior downstream vice president Abdulaziz Al-Judaimi said.

Aramco is already the largest crude supplier to import-reliant South Korea. The country boosted its imports from Saudi Arabia by 1.2pc to 885,000 b/d last year, even as total imports from the Middle East dropped by 10pc to 2.25mn b/d, according to data from state-owned oil company KNOC. Imports from Saudi Arabia fell by 4.5pc from a year earlier to 937,000 b/d in January-February this year.

Stronger influence over South Korean refiners also could yield geopolitical benefits for Riyadh. Unlike SK Innovation and Oilbank, Aramco-controlled S-Oil does not import crude or condensate from Saudi Arabia's chief rival Iran. South Korea's oil imports from Iran rose to nearly 600,000 b/d before US sanctions on Tehran were imposed last year, threatening Aramco's dominance.

South Korea also fits into Saudi Arabia's strategy to expand in petrochemicals. Korean petrochemical exports rose to a record $50bn last year, and the country's refiners are continuing to expand their petrochemical capacity and make their plants more complex.

SK has a joint venture with another Saudi company, Advanced Petrochemical, through its SK Gas unit. The SK Advanced venture, which also includes Kuwaiti state-owned firm KPC's PIC subsidiary, owns a propane dehydrogenation plant with the capacity to produce 600,000 t/yr of propylene.