Saudi Arabia’s state-owned oil company on Tuesday announced plans to invest $7bn in a Malaysian refining project, in a move highlighting concerted efforts by the world’s largest crude producer to secure growth in Asia.
Saudi Aramco said it had signed an agreement with Malaysian energy company Petronas, which is spearheading development of a $27bn crude processing hub in the southern state of Johor.
The Malaysian deal represents one of Saudi Aramco’s largest investments in refining and petrochemicals. It comes ahead of the company’s planned initial public offering, earmarked for 2018.
Saudi Aramco has been expanding its refining capabilities in key export markets across the world in recent years, as it grapples with an intense battle over oil sales with rival crude producing countries including Russia and Iraq.
Under the Malaysian deal, Saudi Aramco is set to take a 50 per cent stake in a new refinery and a petrochemical facility being developed by Petronas and expected to come online in 2019.
The deal could enable Saudi Aramco to supply up to two-thirds of the crude that the new refinery uses as feedstock.
“Together with Malaysia, the Southeast Asia region offers tremendous growth opportunities,” said Amin Nasser, Saudi Aramco’s chief executive. The agreement took three years to negotiate, he added.
Concerns over costs and the margins of refined products threatened to scupper the agreement, with talks running until the eve of the signing on Tuesday, a person briefed on the deal said.
The deal highlights Saudi Aramco’s focus on striking refining deals in core export markets.
Saudi Aramco is set to secure full ownership of a large US refinery in Texas this year by buying out joint-venture partner Royal Dutch Shell.
But it has also been increasing its presence in Asian refining in recent years, by finalising ventures in China, Japan, Indonesia and South Korea.
Saudi Aramco’s rivals are engaged in similar initiatives. For example, Rosneft, Russia’s main state-controlled oil company, last year agreed to buy a 49 per cent stake in Essar Oil, which owns India’s second-largest private refinery.
The agreement between Saudi Aramco and Petronas was signed on the second day of a visit by Saudi ruler King Salman bin Abdul Aziz al-Saud to Malaysia, who is on a multi-nation tour of the region.
The relationship between the two countries has come under scrutiny after Mohamed Apandi Ali, Malaysia’s attorney-general, said in January that transfers of $680m into the bank account of Najib Razak, the country’s prime minister, had been made by the Saudi royal family.
But Mr Apandi said Mr Razak had committed no crime. Allegations of misappropriation of money from 1MDB, a Malaysian investment fund, have engulfed Mr Razak. He has denied wrongdoing.