Recent years have seen a resurgence in American oil production and with the United States edging closer and closer each year toward becoming the second largest producer of crude oil in the world.
The facilities needed to refine and process American oil have grown along with the production capacity, and the largest of these is located in Texas along the Gulf Coast. The Port Arthur refinery is capable of processing 600,000 barrels of oil per day making it the largest refinery not just in the United States but in the whole of North America. As of the 5/1/2017 this facility is under the control of the nominal leader of OPEC as it is owned entirely by Saudi Aramco, the state-owned oil company of Saudi Arabia.
Prior to this week’s deal the Port Arthur facility was a joint venture wherein ownership was shared equally between Aramco and Royal Dutch Shell. The joint venture was known as Motiva Enterprises and the division of ownership and therefore control seemed to breed conflict between the oil titans from the start. A little over a year ago in March of 2016 the companies came to an agreement on an equitable way of separating their assets. On Monday Royal Dutch Shell delivered a statement confirming the division was complete and Port Arthur would now be owned solely by Aramco.
In addition to owning the largest refinery in North America Aramco is also acquiring full ownership of two dozen distribution terminals. Further, Aramco will now be the sole licensed distributor of Shell-branded gasoline throughout much of the old south including Georgia, the Carolinas, Virginia, Maryland the majority of Florida and the eastern half of Texas.
The deal is a major move by Saudi Arabia taken to ensure that whatever the effect is of OPEC’s planned production cuts their market share remains on solid footing. With the acquisition of Port Arthur, Saudi Arabia now has the ability to ensure more than half a million barrels of Saudi crude are processed and sold in the U.S. each day.
This move serves to solidify the Saudi position as America’s second largest foreign supplier of crude behind only Canada. Interestingly, despite Saudi Arabia championing a production cut which applies across most of the nations of OPEC their market share in the U.S. has increased. This February the United States imported 1.3 million barrels every day from the Kingdom an increase of more than 30% from the same period in 2016.
The Saudi long term goal in this is not simply to ensure a stable market for their number one export but to ensure the launch of the Aramco IPO next year goes off without a hitch. The desert kingdom is currently dependent upon oil revenues to fund its bloated budget and the opulent lifestyle of its massive royal family.
The Aramco IPO which could be valued at a jaw dropping $2 trillion will bring a much needed diversity of income to the oil dependent state. In another effort to allay lingering doubts about Aramco’s massive valuation Saudi Arabia greatly lowered taxes on the company earlier this year.
