By Saad al-Kuwari
Oil and gas companies are working to establish an integrated marketing system for the trade of their crude oil, gas and refined products as part of their efforts to expand their international activities, enter new markets and get rid of the centralisation of oil and gas marketing, as was the case in the previous two decades under the umbrella of those national companies.
These new companies or affiliates will undertake "practically non-prospect-based trade to maximise value” from every barrel of crude oil, oil derivatives and gas produced and marketed.
Oil producers in the Middle East are working on entering the activity of trade in crude, refined products and liquefied natural gas to boost their revenues after a sharp drop in oil and gas prices due to the decline in global demand for fuel and the repercussions of the coronavirus pandemic on the global economy, forcing them to enhance efficiency and focus on commercial aspects rather than centralising marketing.
Previously, national companies in oil and gas were marketing their oil, gas and refined products through their departments and they were exposing their upstream to huge financial exposure.
At present this new shift in concept and strategy would obtain the largest market value from the product and maximise revenue.
These companies seek to hold talks with major international companies, for example "Royal Dutch Shell and Total", as well as Vitol, Glencore and other companies trading in oil and its derivatives and LNG in the world regarding the establishment of a partnership and strategic projects for the trade of oil and its products, petrochemicals and gas.
This is to maximise revenues and raise profit margin by exploiting the infrastructure of these giant global companies in terms of warehouses, ports, price exchanges, market knowledge, product pricing formulas, and others, to become more competitive.
It also conducts studies on fuel retail companies for distribution about their offering on the global stock exchange markets, as well as expanding their downstream activities abroad and selling stakes in their refining assets to strategic partners.
And due to the drop in the price of oil, gas, petroleum and petrochemical products (since mid-2014) and the repercussions of the global economy and the coronavirus pandemic, the sector in general has been forced to reduce costs, consider ways to enhance efficiency and compete with new producers such as American shale oil companies, and to start establishing commercial companies for marketing and selling.
Focus on Asia: The goal of establishing these trading companies is mainly to focus on the Asian market, but they will also aim to expand into other markets such as Europe, the traditional outlet for refined products such as jet fuel, diesel, gasoline, crude oil and liquefied natural gas.
As it is known, other producers in the Middle East have also been involved in trade in the last few years. So that the national oil and gas companies are transformed into international companies.
For example, the Sultanate of Oman was the first producer in the Middle East to establish a trade unit in a 50/50 joint venture with Vitol during the past decade. The project, known as Oman International Trade, was eventually bought by the government and is currently wholly owned by the Oman Oil Company.
Saudi Aramco, the world's largest oil exporter, established its trading arm, Aramco Trading, in 2012 to market refined products, base oils and bulk petrochemicals. Aramco Trading also expanded to trade in non-Saudi crude.
And the Iraqi oil marketing company ‘SOMO’" teamed up with the Russian Lukoil in a project in Dubai to trade crude. The project may later expand to operate in the field of trade in refined products and petrochemicals.
Kuwait is also considering establishing a new company to market refined products. This company would help Kuwait sell products, especially from its refining project in Duqm, Sultanate of Oman.
ADNOC is also seeking to establish a company to trade crude oil and refined products.
The trading of financial instruments for the oil and gas sector to find new sources of revenue and achieve a quantum leap in marketing and commercial activities enhances the status of these companies to become an integrated global company in the energy sector, not just a national company for the production of oil and gas.
These firms will become the holders of non-prospect trade operations; to achieve maximum value from every barrel of crude and refined oil and LNG that is produced and marketed by those companies specialising in marketing, selling, pricing and trading.
These new commercial companies also benefit from the size and scope of the companies ’business portfolio in crude oil production, refined products and gas liquefaction manufacturing processes, as well as from the flexibility of operations in the refining and petrochemical industries, and the integration opportunities available to them to accelerate and implement integrated strategies for smart growth in the field of energy.
Here lies the importance of the role that the specialised companies will play in the oil and gas trade and the improvement of supply chains and market access opportunities, especially those with high growth rates, which allow achieving additional value in all stages of the business chain, as well as proactively managing the movement of crude oil and its derivatives across the main geographical areas. Supported by the options provided by the assets and the geographical location, it will enable these marketing companies to develop their operations and seize the opportunities available in the markets to achieve the highest possible value.
The petrochemical and fertiliser industries are expected to achieve significant growth over the next two decades – studies indicate that the demand for petrochemical products will increase by 150% and fertilisers by 110% by 2040.
Likewise, the demand for crude oil and liquefied natural gas will increase by 45% by 2050.
The initiation of the establishment of these marketing companies specialised in the trade of oil, gas and petrochemical has become an urgent and necessary matter in order to achieve a qualitative and integrated shift in marketing and commercial activities by focusing on a proactive approach in three areas: Export, storage and trade to achieve the highest financial return from exports.
* Saad Abdulla al-Kuwari graduated in Chemical Engineering from Qatar University and obtained an MBA in Oil & Gas from Liverpool University. He was appointed CEO of Tasweeq in 2010. During his career, he has occupied several key positions in refining projects and processing, oil, gas and refined products, storage tanks and export terminals operation. He also has considerable experience in the field of Gas Processing Operations. He was also manager of Gas, Oil Petrochemical Marketing in QP Marketing Directorate for several years.
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