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By CLIFFORD KRAUSS
PORT ARTHUR, Tex. — It is hard to imagine the desert sands of the Persian Gulf being any farther away than from this swampy refinery port known for Cajun food, sport fishing and being the birthplace of Janis Joplin.
But right in the middle of town stands a strategic outpost for Saudi Arabia’s global ambitions, although one that the Saudis appear loath to publicize.
The giant Motiva oil refinery, which just completed a $10 billion expansion that makes it the largest processor of gasoline, diesel and other petroleum products in the United States, is owned by Saudi Aramco and Royal Dutch Shell in a 50-50 partnership.
Saudi Aramco’s investment in the refinery expansion is meant to ensure that Saudi Arabia will retain an important market for its crude in the United States at a time when American politicians are declaring their intention to wean the country off imported oil. Adding to the urgency for the Saudis is the fact that the United States is vastly increasing its production and replacing OPEC crude with that from oil sands in Canada.
The expansion of the Port Arthur refinery comes during a particularly complicated period in United States-Saudi relations, as the two countries try to manage changes sweeping the Arab world. While Riyadh has cracked down on dissent and generally resisted efforts to spread democracy in the region, the Obama administration has been less resistant to the changes.
But the Saudis have helped the United States and the global economy by increasing exports to moderate oil prices and top up worldwide supplies as the West applies sanctions against Iran. Saudi Arabia has been able to tap into its spare capacity, mostly lower-quality heavy sour crudes, to stretch its exports. Most refineries cannot easily process those crude oils, but the expanded Motiva refinery here can, freeing other Saudi grades for other markets.
“The Saudis are securing a home for their heavy crude,” said Fadel Gheit, a senior oil analyst at Oppenheimer & Company. “But there is no question that security is also part of the equation. In Saudi Arabia, oil and politics always mix.”
The refinery expansion, which has had its share of cost overruns and mishaps, is nothing if not mammoth. It contains a million feet of pipe and a thousand miles of instrument cables; 63,000 concrete pilings were driven into the swamplands to stabilize the skyscraping distillation and heating towers.
But what is almost hidden at this marvel of chemical engineering is the critical Saudi Arabian presence, aside from a couple of Saudi Aramco coffee-table books on display in the executive offices and a pair of Saudi and Saudi Aramco flags inside the refinery’s small museum. Tucked away in an administration building, the museum also includes photographs of some visiting Saudi Aramco executives. Only a couple of Saudi trainees work at the plant, which has roughly 2,000 employees and contractors.
“They want to be relevant but invisible,” Lawrence J. Goldstein, a director of the Energy Policy Research Foundation, which is partly financed by the oil industry, said of the Saudis.
The importance of the refinery to Saudi Arabia has been underscored by Khalid Al-Falih, Saudi Aramco’s president and chief executive, who has visited the refinery twice in the last year and is scheduled to come back again in a few months.
“Our commitment to this market is unwavering,” he told energy executives at the IHS-CERA energy conference in Houston in March shortly after his most recent visit.
Brett D. Woltjen, the refinery’s production manager, said that Mr. Al-Falih did not come with much fanfare.
“He does have his team of people but it’s small,” he said. “It doesn’t feel like we’re being invaded.”
Saudi Aramco is already the world’s biggest oil company with monopoly rights over Saudi Arabia’s 260 billion barrels of proven oil reserves and the world’s fourth-largest natural gas reserves. But with the Motiva refinery’s increased capacity, the Saudi company is also now well on its way to achieving its goal of surpassing Exxon Mobil as the world’s largest refiner in the next few years, with joint ventures in places like China, South Korea, India and the Netherlands.
As the central tool of the Saudi Kingdom’s economic and foreign policy, Saudi Aramco, with its broadening reach in global refining and petrochemical markets, can enhance Saudi influence in China and other emerging global centers while it profits from selling finished products that fetch higher prices than crude oil.
When the decision to invest in the refinery expansion was made in 2007, Port Arthur looked like a sure bet to refine more Saudi oil. Production of similar Venezuelan and Mexican grades of crude was falling while American demand for gasoline was growing. But over the last three years, domestic United States oil production has been booming, thanks to new drilling technologies, and imports of crudes from Canadian oil sands have been soaring.
Imports of Saudi oil dropped from 1.8 million barrels a day in 2003 to just over 1 million barrels a day in 2010, replaced primarily by Canadian oil that over the same seven years increased from 2 million to 2.8 million barrels.
Despite the changing market conditions, the Motiva expansion is helping to stem the decline of Saudi imports, which revived last year to 1.4 million barrels a day largely because of a buildup of storage for the refinery.
Now the Motiva refinery, like others around the Gulf of Mexico, needs to deal with the problem of slumping demand for gasoline in the United States, the result in part of the flat economy and increasingly efficient cars.
But Motiva executives said they, like their competitors, were prepared to export much of their production, especially diesel to Latin America where the market is growing.
Saudi Aramco first invested in the Port Arthur refinery in 1989 as part of a broader deal with Texaco, giving the Saudi company a half-interest in Texaco refineries and gasoline stations in 33 states.
Saudi officials acknowledged publicly at the time that their goal was to become the United States’ No. 1 source of imported oil, a position they would alternate with Mexico and Venezuela over the next decade.
In 2002, after Texaco was purchased by Chevron, its stake in what became known as Motiva Enterprises was bought by Shell and Saudi Refining, a subsidiary of Saudi Aramco. Today, Motiva also has two refineries in Louisiana and markets its production through a network of 7,700 Shell-branded gasoline stations across the United States.
Motiva’s crown jewel is its refinery here. The expansion allowed the facility to refine various varieties of crude oil and more than doubled its production capacity to 600,000 barrels a day of diesel, gasoline, jet fuel and other products.
The refinery is designed primarily to refine various grades of Saudi crude and crudes that Shell produces in the Gulf of Mexico, but it has the flexibility to process crude from Canadian oil sands and from other American and Latin American fields. (The proposed Keystone XL pipeline being considered by the Obama administration would connect the Canadian oil sands fields to Port Arthur, a major refinery hub.)
But the expansion did not come without problems, or without causing friction between Shell and Saudi Aramco executives over cost overruns, financing and other issues. Shortly after the expansion was completed last spring, a chemical leak and fire in a new distillation unit designed to process 325,000 barrels of crude a day sidelined much of the new facility until January. The unit came back up to its intended capacity in late February.
Saudi Aramco declined to comment on the refinery or the company’s relationship with Motiva Enterprises. But in an interview, Robert W. Pease, Motiva’s president and chief executive, praised the Saudi commitment to supplying oil to the United States.
“The fact that Saudi Arabia continues to supply crude into the United States — even during periods when market pricing in the East suggests more should have gone there — is beneficial to the American customer,” he said.
Mr. Pease answers to a board that consists of Shell and Saudi Aramco executives.
“We’ve had some challenging issues,” Mr. Pease said. “How do you fund this project? What are the expectations? And, we have some robust dialogue.” But he added that “I think the relationship has gotten stronger.”
Saudi Aramco and Shell keep the commercial terms of their agreement confidential.
“Trying to get into any rights, sales rights or obligations, or any of those, I couldn’t begin to talk about it,” Mr. Pease said.
But several experts say that Motiva guarantees that a large amount of Saudi oil will be imported. They also say that Saudi Aramco discounts Saudi crude sales to Motiva through various accounting adjustments and credit lines with generous terms.
“The Saudis are going to have to keep discounting the crude for the joint venture to buy it,” said David L. Goldwyn, who served as the State Department’s coordinator for international energy affairs in the first Obama administration. “That makes it probably first a Saudi geopolitical asset by guaranteeing some market share even at a discounted price.”
http://www.nytimes.com/2013/04/05/bu...l?ref=business