Saudi Arabia Gains ‘Upper Hand’ in Competition for Asia Energy Demand with Massive $7b Aramco-Petronas Deal

Oil giant Saudi Aramco signed a $7 billion deal Tuesday to take a 50 percent stake in a mega Malaysian oil refinery project, in a pact expected to help Saudi Arabia increase trade in Southeast Asia and give the Kingdom an “upper hand” in the supply competition for Asia’s energy demand, according to reports.

Saudi Aramco’s investment into Malaysia’s RAPID project “will secure an outlet for its crude oil for at least two decades and beefs up its downstream portfolio ahead of its initial public offering (IPO) next year,” Reuters reports.

H.E. Khalid Al-Falih and Amin Nasser with officials from Malaysia's Petronas at a signing ceremony for a massive $7b deal.

H.E. Khalid Al-Falih and Amin Nasser with officials from Malaysia’s Petronas at a signing ceremony for a massive $7b deal.

The strategic investment stake is set to give Saudi Arabia a boost against other producers like Russia and other Middle Eastern producers competing for valuable Asian market share.

“Buying a share of a large oil refinery with a promise to provide crude is a time-tested producer tactic for locking up customers,” Reuters reports. “Russia, the world’s largest oil producer, has bought a major stake in India’s Essar refinery and plans to build one in Indonesia with state-owned Pertamina.”

H.E. Khalid Al-Falih.

H.E. Khalid Al-Falih.

According to the Associated Press, Malaysia’s Petronas chief Wan Zulkiflee Wan Ariffin said the investment was a “historic moment for the industry” for two national oil companies to tie-up for a mammoth greenfield project.

The same AP article said the deal took three years to negotiate. The deal was signed while Saudi Arabia’s King Salman and as many as 1,500 Saudi officials and members of his entourage are visiting Malaysia as part of a month-long Asia trip for the King.

In addition to the Aramco-Petronas signing, seven other deals worth more than $2 billion were inked between Saudi and Malaysia companies as the Kingdom looks to expand investment ties in the region.