PETROLIAM Nasional Bhd is partnering Saudi Arabian Oil Company (Saudi Aramco) only to build a refinery and a steam cracker complex, which forms part of the multibillion-ringgit refinery and petrochemical integrated development (RAPID) project in Pengerang, Johor, and not buying the entire RAPID, president and CEO Datuk Wan Zulkiflee Wan Ariffin says.

“There is a lot of misinformation out there. This venture with Saudi Aramco is only for the refinery and cracker plant. We have got the whole of the Pengerang integrated complex and have many more components than just the refinery and cracker,” he says.

“We have huge utilities, we have a power plant and many other associated facilities, so this is just the refinery and cracker.”

Many did not understand that Saudi Aramco had only bought specifically into the refinery and steam cracker plant; they thought that the Saudi national oil company had bought into RAPID on the cheap, forking out only US$7 billion (RM31 billion) for half of it.

The total development cost for RAPID is about RM89 billion, down from the original price tag of RM97 billion.

There is also the issue of Petronas securing crude feedstock for the refinery. With this new agreement, Saudi Aramco is slated to supply a chunk of Petronas’ feedstock requirements.

“Many people understand that there is a surplus of crude, but not many understand that you need a certain type of crude to make full use of the refinery.

“Saudi Arabia, being the largest exporter of crude, will give us that security of supply in terms of the type of crude that is most optimal,” Wan Zul says, adding that the supply for RAPID will be medium (between sweet and sour crude).

At the initial stages, RAPID was to be funded entirely by Petronas, but that changed along the way.

“When we sanctioned RAPID, we were planning to do everything by ourselves — fund it all by ourselves. So, it is not a question of whether we are able to fund it. RAPID is a strong project and we cannot discount the possibility of project financing,” says Wan Zul.

“Having two financially strong companies will offer very competitive rates. It has been reported that their equity portion is around US$7 billion. There are still many ways to optimise cash requirements on both sides.”

For its financial year ended December 2016, Petronas registered a net profit of RM16.95 billion on the back of RM204.91 billion in revenue. In contrast to a year ago, net profit rose 28.8% despite revenue falling 17.3%.

Meanwhile, Saudi Aramco, with a planned initial public offering (IPO) next year, is preparing to give investors access to its accounts.

To put things in perspective, last April, Saudi Arabian Deputy Crown Prince Mohammed Salman said the planned listing of 5% of Saudi Aramco could value the company at more than US$2 trillion, making it the world’s largest listed company.

Asked whether Petronas is looking at taking a stake in Saudi Aramco, Wan Zul says,“We will cross the bridge when the time comes.”

Petronas is not new to such corporate games. In July 2006, it acquired US$1.1 billion worth of Rosneft shares as the Russian oil giant sought support prior to its US$80 billion IPO.

Back then, Petronas’ chief, Tan Sri Hassan Marican, had said buying into Rosneft was the “logical thing to do”.

Thus, while Petronas’ reasons for a tie-up may seem obvious, Saudi Aramco’s move is also understandable.

Saudi Aramco could be looking for new markets as it loses its grip on the US.

According to news reports, citing US data, Saudi Arabia’s crude oil exports to the US for the week of March 3 to 10 dipped by 426,000 barrels a day, in contrast to the previous week, marking the sharpest weekly drop since late November, when the Organization of the Petroleum Exporting Countries cut production in the hope of boosting prices.

Other burgeoning oil markets, such as China, are more inclined to buy crude from Russia, while Italy, France and Spain seek Iran or Iraq for their oil needs.

With such competition, it is understandable why Saudi Aramco was keen to partner Petronas and lock in sales of crude oil.

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