There are large-scale industrial sites that are built to operate quietly in the background. If there is a disruption – even if it is temporary — the ripples of that disruption tend to travel well beyond the property boundaries. This backdrop frames conversations between Saudi Aramco and TotalEnergies over an unexpected shutdown at SATORP, a jointly-owned downstream operation located in Jubail that has been regarded as a major plank of their downstream efforts together.
The SATORP refinery is not an unimportant asset
The refinery is one of the largest in the Middle East and serves as the centerpiece of Saudi Arabia’s initiative to extend its value-added activities along the petroleum production supply chain. Over time, it has transitioned from simply a place where crude oil was processed into a focal point for additional petrochemicals development, most notably through the creation of the AMIRAL petrochemical development project adjacent to the refinery.
Before the shutdown of the refinery, the direction seemed relatively clear. Essentially, the plan involved combining the benefits of scale (through the combination of two refineries), proximity to feedstocks, and export capabilities to develop a competitive refining/processing complex that could service both Asian and global markets. It wasn’t really a question of “if” they would expand; it was merely a question of “when.” That feeling of inevitability seems to be fading.
An interruption disrupts a strategy
While the shutdown was primarily operational in nature, it caused a sufficient disruption that forced a delay in planning. At this size, unplanned disruptions may not necessarily cause significant damage or loss in the short term; however, they do allow companies like Saudi Aramco and TotalEnergies to assess their assumptions regarding their ability to maintain production levels during periods of disruption, their degree of interconnectivity among their facilities, and the optimal timing for deploying capital.
The assessment and reassessments resulting in reconsiderations
At present, these assessments are causing them to consider all of their planned expansions related to SATORP, including how and when the AMIRAL petrochemical facility will provide feedstocks to support the expanded refining operations. While their overall strategy remains unchanged — i.e., expanding and enhancing their downstream operations — they are reviewing these plans from a much more conservative perspective.
How is this an expansion on different terms?
AMIRAL is intended to convert by-product materials generated by the refinery into higher-value chemical products and plastics.
Once complete, it is expected to increase the level of downstream integration of SATORP significantly while creating new opportunities to generate revenues.
What are the implications beyond Jubail?
The real issue created by the shutdown has shifted focus from achieving growth and maximizing returns to reliability and redundancy — specifically, ensuring that each successive level of integration increases — rather than threatens — the strength and efficiency of the underlying refinery complex. In other words, they are moving toward a more measured approach to expansion rather than trying to accelerate expansion based upon specific windows of opportunity. This represents a readjustment rather than a withdrawal.
Other national and multinational oil companies share similar trade-offs between their desire to achieve ambitious objectives and their need to ensure operational integrity — especially as upstream/downstream projects continue to grow larger and increasingly interconnected. The assessment being conducted by Saudi Aramco and TotalEnergies relative to SATORP demonstrates how a single operational disruption can encourage broad strategic reconsideration.
While Saudi Aramco and TotalEnergies have chosen not to abandon their commitment to downstream expansion, they are seeking greater clarity with respect to how confidence should be placed in such endeavors. As downstream ventures become increasingly complex — involving multiple layers of integration — we anticipate that many oil companies throughout the Gulf region will be focusing on balancing the potential gains of scale with corresponding requirements for resiliency.
