NEW YORK/HOUSTON/BEIJING (Reuters) - Saudi Arabia will quit a long-held lease for 5 million barrels of Caribbean oil storage near the key U.S. market on Thursday and state giant PetroChina is poised to move in, industry sources said, a potential major shift in global oil trade dynamics.
Coming just weeks after Saudi Oil Minister Ali al-Naimi revealed the world’s top oil exporter accepted an offer for free storage in Japan, the news underscored the growing importance of China and Asia versus the United States, where the government says oil demand has already peaked and supply competition from nearby Brazil and Canada is expanding.
It also highlights the increasingly global reach of China’s biggest state oil company, which could use the facilities as a staging point for a growing slate of South American oil deals or as trading leverage in the U.S. market, which still effectively sets the global price of oil.
While analysts said the commercial rationale was the motivating factor, the move also has potential geopolitical implications, relocating one of Saudi Arabia’s small but important tools for providing energy security to top markets.
Three sources familiar with Saudi operations at the terminal told Reuters state oil company Saudi Aramco ended its arrangement to lease at the 13 million-barrel Statia Terminals on the island of St. Eustatius. The 5 million-barrel lease, regularly renewed by an Aramco subsidiary since 1995, formally ends on December 31, one of the sources said.
“Aramco dropped out of storage recently, having discussed it for quite some time,” a source familiar with Saudi Aramco’s positions in the Caribbean said.
“They have more important emerging markets to look at.”
A source in China said PetroChina was negotiating to take the space, although it wasn’t clear whether it would mainly store crude oil or residual fuel, which is actively traded in the region. A second source familiar with the terminal said that a large, state-run enterprise was taking over the Aramco lease, but declined to identify the party.
“We have been running some fuel oil tanks there but want to expand,” the Beijing-based PetroChina source said.
San Antonio-based NuStar Energy LP, which owns and operates the St. Eustatius terminal, declined to comment. Saudi Aramco did not respond to requests for comment. PetroChina officials in the United States also declined to comment.
While there are several other major oil storage facilities around the Caribbean, the Saudis were not immediately expected to take up any other tanks, one source said.
While the move may be symbolically significant, the Saudis are far from abandoning the U.S. market, which still takes in about one in seven barrels of the kingdom’s exports and consumes twice as much oil as China.
Aramco is still pressing ahead with plans to double capacity at a Port Arthur, Texas, refinery it owns jointly with Royal Dutch Shell.
At 5 million barrels, the capacity on offer is relatively small — only enough to meet about six hours’ worth of U.S. demand. It is much more flexible but tiny compared with the Strategic Petroleum Reserves, which as of Wednesday had nearly hit capacity at 726.6 million barrels.
“It’s purely a reflection that the world market is changing and the big demand is going to be in China, India.... The Saudis want to make sure they’re positioned not to lose those markets,” said Charlie Ebinger, director of the energy security initiative at the Brookings Institution.
“Clearly the U.S. and the Saudis have very strong mutual interests. Clearly the Saudis know we are clearly the last resort in terms of protecting their physical security.”
But following years of U.S. political rhetoric about the need to reduce reliance on Middle East oil imports, it is also an indication some suppliers are just as actively looking away toward higher-growth markets.
Aramco held the storage as a buffer against any short-term supply shocks in the U.S. market, giving it the ability to meet any immediate needs within days rather than wait six weeks for a supertanker to sail to the U.S. Gulf from the Saudi coast.
But things have changed since the 1990s.
Saudi crude oil shipments to the United States fell to a 22-year low earlier this year as the recession slashed fuel use, and oil demand is unlikely ever to exceed its 2005 peak, according to a Department of Energy forecast this month.
With storage facilities swelled to bursting and more supply coming from nearby Canada and Brazil, there’s less need for Saudi Arabia to act as a supplier of last resort in Western markets — but potentially more reason in the East, where local supply is dwindling while consumption gallops ahead.
In a surprise move, oil minister al-Naimi said last week that the kingdom had signed a deal to put “millions of barrels” of oil in commercial storage in Japan for no charge, moving supplies to within a short voyage of China. Japan is the world’s No. 3 consumer but demand has been shrinking there for years so storage capacity is in surplus.
And while supply restraints imposed by the Organization of the Petroleum Exporting Countries to support prices have affected Saudi sales to most of its customers, the cuts have not been evenly distributed, official government data show.
China’s imports from Saudi Arabia rose more than 12 percent this year to just over 800,000 bpd, outpacing the 11 percent growth in total imports in the year through November [ID:nTOE5BL017]; U.S. Saudi imports fell nearly a third to average just over 1 million bpd this year through September.
For a graphic on Saudi Arabia’s exports click:
NuStar’s terminal on St. Eustatius, more than 1,100 miles southeast of Miami, Florida, is among the largest storage and shipping operations in the Caribbean.
PetroChina, which has had a U.S. subsidiary in New Jersey since at least 2003, has accelerated its expansion recently, opening a trading office in Houston last August and expanding to 10 traders, company sources told Reuters.
China has shown growing interest in Latin America, particularly resources including crude oil, for the past decade as its economy and appetite for raw materials grew. It has signed oil deals with Venezuela and Ecuador.
And PetroChina, which dominates upstream oil production in China, has moved ahead of top refiner Sinopec in driving its downstream expansion abroad, buying half of a large refinery in Singapore, reviewing a possible deal in Scotland and reportedly in talks on a bid for Valero Energy Corp’s 235,000-bpd idled Aruba plant.
“It does appear PetroChina is becoming a bigger force in the oil market. Adding storage capacity close to the U.S. market could be another step in that growth process,” said Tom Bentz, senior commodity analyst at BNP Paribas Commodity Futures Inc in New York.
The global footprint, coupled with beefed-up trading desks, are cornerstones in its ambition to become one of the world’s biggest oil-trading energy companies as China seeks to leverage its demand to exert more influence on prices.
Additional reporting by Ayesha Rascoe in Washington; Editing by Jonathan Leff and Lisa Shumaker