Saudi Aramco plans to buy up to 19.9% stake in Hyundai Oilbank from its parent company Hyundai Heavy Industries Holdings Co. for $1.6 billion, a move that could give the major Middle Eastern crude producer a strong foothold in one of Asia's leading oil consumers.
Hyundai Heavy Industries said the company is currently in talks with Saudi Aramco over the sale of its stake in Hyundai Oilbank, and the deal will be finalized following the approval from its board of directors whose meeting will be held soon.
Aramco is planning to buy Hyundai Heavy's 19.9% stake in the refiner for no more than 1.8 trillion won ($1.6 billion), Hyundai Heavy Industries said in a statement Monday.
Saudi Aramco's move to invest in South Korea comes a year after the Middle Eastern firm decided to invest in two of Asia's biggest refining projects -- in Malaysia and in India -- a strategic push into Asia that will ensure the Middle East producer a huge outlet for its crude in coming years as oil faces increasing competition from alternative energy supplies.
In 2018, Saudi Arabia was the biggest crude supplier to South Korea, with Asia's fourth biggest oil consumer importing 313.17 million barrels.
However, the major OPEC producer saw its market share slide last year amid South Korea's growing appetite for light sweet crude oil from the US, Kazakhstan and Africa.
Latest data from state-run Korea National Oil Corp. showed that South Korea's crude imports from Saudi Arabia fell 17.1% year on year to 24.48 million barrels in December 2018. For the full 2018, Saudi crude imports were also 1.9% lower than the 319.22 million barrels received in 2017.
"With the deal, Hyundai Heavy will boost its partnership with Aramco," a company official said.
"Aramco's plan to buy a stake in Hyundai Oilbank can be seen as Saudi Arabia's move to secure its market share in South Korea, one of the major demand centers in Asia," a senior refinery source based in Seoul said.
SPREADING ITS WINGS IN ASIA
Saudi Arabia has somewhat struggled to maintain its grip on the Asian market share over the past couple of years as a flurry of competitive arbitrage cargoes from the US, the Mediterranean and Africa attracted many refiners in East Asia.
South Korean refiners especially, have been actively searching for cheaper crude outside the traditional Persian Gulf market over the past few years, while the growing barriers blocking access to Iranian oil further encouraged the companies to step up their feedstock diversification efforts.
South Korea's crude oil imports from the US for one, surged more than six-fold to 13.61 million barrels in December from 2.07 million barrels a year earlier, latest KNOC data showed.
The volume was the largest since South Korea began importing US barrels in September 2014. The December imports were also double the 6.66 million barrels imported in November.
The imports made the US South Korea's third-biggest crude supplier in December, overtaking some of the traditional Middle Eastern suppliers including Iraq, the UAE and Qatar.
For the full year 2018, the country's US crude intake jumped almost five-fold to 60.94 million barrels from 13.43 million barrels in 2017.
The sharp increase was driven mainly by increased purchases of Eagle Ford condensate as an alternative to Iran's South Pars condensate, as well as the North American price benchmark WTI's consistent discount to the Middle Eastern benchmark Platts Dubai, industry sources said.
South Korea's imports of Kazakhstan's light sweet CPC Blend crude also more than doubled to 6.6 million barrels in December from 3.16 million barrels a year earlier. Over January-December, imports of CPC Blend jumped 109.2% year on year to 55.43 million barrels.
However, industry sources in Seoul said Aramco's growing presence and stakes in the country's refining sector could mean that South Korea will likely serve as a major Asian outlet for Saudi crude exports going forward.
When contacted by Platts, crude and feedstock procurement mangers at Hyundai Oilbank declined to comment on the refiner's Saudi crude procurement plans for 2019.
However, a company source based in Seoul indicated that "at least a certain portion of monthly crude purchases could be fixed for light and medium sour Saudi grades."
Apart from Hyundai Oilbank, Saudi Aramco's subsidiary Aramco Overseas Company currently holds 63.4% stake in South Korea's third largest refiner S-Oil.
In March 2018, Malaysia's state-run Petronas finalized a deal with Saudi Aramco that gave them equal ownership of the Refinery and Petrochemical Integrated Development, or RAPID, refinery project, which includes a 300,000 b/d refinery. Under the agreement, Saudi Aramco will supply 50% of the refinery's crude feedstock with the option of increasing it to 70%.
And in April last year, Saudi Aramco signed an agreement with India to jointly develop an integrated 1.2 million b/d refinery and petrochemical plant in the western Maharashtra state -- called the Ratnagiri Refinery and Petrochemicals Ltd -- at an estimated cost of $44 billion.
(This content has been updated since last published. Adds details, quotes.)
