Aramco's entry into Saudi fuel retail secures long-term market for its oil

Network of gas stations to give "natural hedge" in case of weaker oil prices, analysts say

Saudi Aramco's Ras Tanura oil refinery - the company has set up a fuel retailing subsidiary to run a network of petrol stations in the kingdom. Reuters

Saudi Aramco's plan to set up and run petrol stations across the kingdom will help the world's biggest crude exporter secure a long-term market for its oil barrels and expand its services in line with the offerings of its global rivals, analysts say.

The state-owned company's expansion into the fuel retail business is the next logical step - and a long time coming - after signing major international deals in refining and petrochemicals as part of its strategy to grow across the energy supply chain, economists and analysts said.

"It will help secure a long-term market share for Aramco oil barrels when they buy into the retail distribution system and have guaranteed access," Edward Bell, commodities analyst at Emirates NBD, said. "Expanding in retail makes sense for a company that's positioning itself like a big international oil company."

The oil giant on Wednesday said it formed a fully-owned subsidiary, Saudi Aramco RetailCo, to establish a network of gas stations and convenience stores in the country. Aramco is focusing on becoming an integrated energy company, which means it is expanding its operations beyond oil extraction into the entire supply chain including refining, marketing and distribution of fuels and petrochemicals. The company is increasingly seeking opportunities in downstream projects and is in talks to buy a 70 per cent stake in Saudi Basic Industries Corporation, one of the biggest petrochemicals manufacturers in the Middle East, from the Saudi sovereign wealth fund.

Aramco will likely face competition from the UAE-based Adnoc Distribution, the UAE's biggest fuel and convenience retailer, which is slated to open two stations in Saudi Arabia, its first foray outside its home market. Emirates National Oil Company is undertaking refurbishment of fuel service stations in the kingdom and is close to completing its planned 15 retail units, chief executive Saif Al Falasi told The National in October.

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The retail expansion, "if you look at Aramco with the lens of them touching every bit of the energy supply chain", is the next move in line, Mr Bell said.

Aramco, which was previously focused on upstream operations, could gain a "natural hedge" by entering into fuel retail that would give it an extra buffer in case of weaker crude prices, he said.

The oil major said on Wednesday that RetailCo will be a "sustainable and profitable business that integrates across the hydrocarbon value chain."

"It's the norm for a national oil company to run petrol stations in its home market," Robin Mills, chief executive of consultancy Qamar Energy, said. "It's funny that they haven't done it until now."

Aramco would have a competitive edge over other fuel retailing rivals in the Saudi market as the company has infrastructure from refineries to logistics already in place, he noted.

"It's a large and fast-growing market," Mr Mills said. "If Aramco wants to go downstream, it makes sense for them to be in retailing in the home market."

An Aramco spokesman on Thursday declined to comment on the cost, size or the timeline for the project when contacted by The National .

Adding fuel retail services in its home market will help Aramco compete with global oil companies such as Shell or BP, and provide a benchmark for investors to compare the Saudi oil producer with its international peers, Mr Bell said.

The move into fuel retailing will allow Aramco to lift the service standards at the gas stations on the kingdom's vast network of highways, Ihsan Buhulaiga, a Saudi economist said.

"For consumers, it will improve the level of service and that sector really needs capable investors with the financial muscle to make the difference," he said.

Aramco in April said that it’s studying the joint purchase of a retail network in Saudi Arabia with French oil major Total but it made no mention of the French company in Wednesday's announcement.

As part of becoming a fully integrated energy company, Aramco's trading arm plans to start handling crude in Asia through its office in Singapore in the third quarter of this year and aims to boost its volumes for trading crude and refined products to 6 million barrels per day (bpd) by 2020, according to Reuters.