The recent news that Saudi Aramco acquired a 30 per cent stake in a European player – Poland’s Rafineria Gdańska – did briefly appear in the media, but went mostly unnoticed. Apart from some discussion about the investment’s value, which, considering its small scale of about EUR250 million, did not really warrant a great deal of attention
What industry-watchers may not have realised is that this deal is only Saudi Aramco’s second investment in a refining business located in the European Union (it did once take a shareholding in Motor Oil Hellas but the Greek investment ended decades ago). That fact alone should completely change the perception of this transaction
Those familiar with the oil and gas market know that Aramco is not a one-time investor. If this company makes investments, it plans ahead in terms of decades, and not in five-year timescales as is typical in the private equity investment market. And with this deal, there are management challenges that Aramco has not dealt with before
The greatest challenge for refiners in the EU compared to their counterparts elsewhere is the cost of carbon. Under the EU emissions trading system, all industrial enterprises need permits for the carbon dioxide they emit. Although in many countries, they are still receiving many – if not the majority – of these permits for free, the required ratio of free permits to total is falling and companies need to bear more of the cost themselves, further increasing the cost of doing business.
In addition, the European Parliament has recently voted to ban the sale of cars with internal combustion engines from 2035 onwards. This will accelerate the decline in demand for automotive fuels. The EU bloc’s rules on solidarity contributions also highlight the fact that Europe is not a market that lacks political risks. By becoming a European refiner however, Aramco gets a seat at the table when further regulations are discussed, and a better insight into the process of .decarbonisation in what is still a major market for crude oil
Aramco has already gone through a similar process by adopting its internal standards to the US market, as was the case following its acquisition of a minority stake in Motiva Enterprises’ refinery and petrochemicals business. In the beginning, it was a minority package, as in the case of its Polish investment in Europe. Then, following a raft of organisational and internal changes, in 2017 Aramco acquired 100 per cent of the company’s shares, enabling it to conduct a full expansion into the markets of North and South America. More recently, the newly active Aramco trading company absorbed Motiva Trading, gaining scale and experience in the global trading business
The takeover of Motiva appears to have gone smoothly. The business was a joint venture with Shell and therefore had the benefit of Shell’s institutional knowledge in the area of ESG. There is no comparison between the Gdańsk Refinery in Poland – the EU-regulated company – and Motiva in terms of the scale or value of this investment. However, there is a huge analogy in terms of Aramco's organisational challenges. The framework of EU regulations which Aramco has just joined are among the world’s most stringent.
Saudi Aramco has already indicated its interest in investing in a petrochemicals plant in Poland, and so this acquisition may well be a first step in a bigger European strategy. If this is the case, then thelessons it learns in the short term will have a major impact on further strategic decisions to come, as Aramco seeks to become a truly global energy company.
Opinion – by Jonathan Lamb & Zbigniew Jankowski
Aramco seeks to become a truly global energy company.