Page 8 - DMEA Week 45

DMEA CommentaRy DMEA
JXTG unlikely to invest in Aramco
The head of Japan’s largest refiner has questioned the attractiveness of the Saudi oil giant’s forthcoming listing
middle east
What:
JXTG president Tsutomu Sugimori has said Aramco needs to show greater corporate transparency.
Why:
Aramco’s reserve levels are unclear, as are its contracts with the Saudi royal family.
What next:
Japanese investors
may avoid the IPO unless the producer can demonstrate change.
JAPAN’S largest refiner has cast some seri- ous doubt over whether Saudi Aramco’s long- awaited initial public offering (IPO) will able to attract Japanese investment.
Speaking at the company’s earnings briefing in tokyo on November 8, JXtG president tsu- tomu Sugimori said there were several question marks over Aramco’s reserve levels as well as cor- porate transparency that could make investing in the world’s largest oil producer a tough sell to shareholders.
At the same time, however, the executive also revealed that his company was planning to reduce its term crude imports from the Middle East as a whole, citing both security concerns and the need for greater feedstock flexibility as motivating factors.
his comments came just days before Aramco published its IPO prospectus on the tadawul stock exchange in Riyadh on November 10.
Sugimori poured cold water on speculation that Japanese investors were as enthusiastic for the IPO as some others in Asia reportedly were.
“It’s difficult to think that many Japanese investorswillmakeinvestments,”Sugimorisaid. “Japanese companies have stakeholders and they need good reasons to explain to shareholders why they would make such hefty investments and we need to do strict due diligence.”
Elaborating on potential investor concerns, Sugimori underscored the lack of concrete infor- mation on Aramco’s reserves as well as the com- pany’s contracts with the Saudi royal family as areas that needed full disclosure. he questioned, however, Aramco’s willingness to provide this level of detail.
At the same time, Sugimori revealed that his company’s refining division JXtG Nippon Oil & Energy was looking to reduce term crude oil imports from the Middle East from next year.
While the low cost and ready availability of Middle Eastern crudes have allowed them to dominate Japan’s oil import basket, Sugimori said economics were also behind the move to cut term deliveries.
“We are looking to reduce fixed deals as much as possible in order to be able to buy light and heavy grades as needed on a spot basis,” said Sugimori. “This would be most economically rational as well as helping [us] to respond to the IMO[2020standards].”
While the executive noted that his company’s motivations were economically motivated, he admitted that “security issues surrounding the Strait of hormuz” were also a concern for JXtG.
S&P Global Platts noted that around 80% of Japan’s crude imports came via the strategically vulnerable waterway, which Iran has previously threatened to block. The Middle East accounted for 88% of the East Asian country’s oil imports in 2018.
however, the attacks on key Saudi oil facilities onSeptember14thatknockedout5.7mnbarrels per day (bpd) of the kingdom’s production have shaken buyer countries’ faith in the security of Saudi supply.
Of the September attacks at facilities in Abqaiq and Khurais, Aramco said in its IPO pro- spectus it did not expect them “to have a mate- rial impact on its business, financial condition or results of operations”. however, the fact that the country’s infrastructure is so vulnerable to assault, an event which could lead to a wider war in the region, has not escaped the notice Japanese importers.
What next
Sugimori’s concerns about the Aramco IPO and his comments about JXtG’s feedstock diversifi- cation goals underscore the risks associated with Middle Eastern oil.
Japan’s downstream has witnessed a number of government-driven capacity rationalisations over the years on the back of weakening national oil demand.
this trend is likely to continue, providing Japanese refiners with the opportunity to reduce their exposure to Middle Eastern crude. There seemstobelittleeconomicorstrategicappealfor Japan’s investors to commit large sums of money to Aramco’s offering. Based on those concerns, other foreign investors may also want to exercise similar levels of caution over the IPO.™
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w w w . N E W S B A S E . c o m Week 45 14•November•2019