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Last Updated: July 25, 2019
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Saudi Arabia’s crude oil production approached a four-year low in May 2019, averaging an estimated 9.9 million barrels per day (b/d), more than 1 million b/d lower than its all-time high in November 2018. Production in Saudi Arabia dropped following a December 2018 agreement by members of the Organization of the Petroleum Exporting Countries (OPEC) to cut crude oil production. Saudi Arabia’s crude oil exports, especially to the United States, have also fallen. However, some countries—in particular, China—have increased their imports of crude oil from Saudi Arabia.

Four Asia-Pacific countries that publish crude oil imports by country of origin—China, Japan, South Korea, and Taiwan—collectively imported an average of 3.5 million b/d of crude oil from Saudi Arabia in 2018. China’s, Japan’s, and Taiwan’s 2019 year-to-date crude oil imports from Saudi Arabia are larger than their 2018 annual averages, but South Korea’s have declined slightly, based on data through May 2019.

In contrast, U.S. crude oil imports from Saudi Arabia have declined year-to-date through April 2019 compared with the 2018 average by more than 0.2 million b/d, averaging 0.6 million b/d for the first four months of 2019. Weekly estimates through July 12 show continued declines, indicating that U.S. crude oil imports from Saudi Arabia averaged about 0.5 million b/d in May and in June.

Saudi Arabia crude oil exports to selected countries

Source: U.S. Energy Information Administration, Petroleum Supply Monthly, and Weekly Petroleum Status Report; China’s General Administration of Customs; Japan’s Ministry of Economy, Trade, and Industry; Korea National Oil Corporation; Taiwan’s Bureau of Energy; and Bloomberg L.P.

These recent changes in crude oil trade patterns are partially a result of long-term structural trends within China and the United States and partially a result of recent oil market dynamics. From 2010 through 2018, EIA estimates that total Chinese petroleum consumption increased from 9.3 million b/d to 13.9 million b/d and that Chinese domestic production increased from 4.6 million b/d to 4.8 million b/d. As a result, China’s need to meet incremental oil consumption has been met primarily by imports.

China’s crude oil imports from Saudi Arabia have gradually increased in recent years, and in March 2019, reached 1.7 million b/d, the highest level for any month since at least 2004. Other countries, including Russia and Brazil, have been exporting more crude oil to China, however, and Russia surpassed Saudi Arabia as China’s largest source of crude oil on an annual average basis in 2016.

U.S. crude oil imports, on the other hand, have steadily decreased as domestic crude oil production has increased. In addition, U.S. crude oil imports from OPEC members have declined following increases from other countries, especially Canada. Canadian crude oil can be a substitute for certain OPEC grades and can have lower transportation costs when shipped by available pipeline capacity.

Saudi Arabian crude oil exports to China increased recently, in part, because of the start-up of a new 0.4 million b/d refinery in Dalian, Liaoning Province, which has a supply agreement with Saudi Aramco, Saudi Arabia’s national oil company. Saudi Aramco also has a supply agreement with a 0.4 million b/d refining and petrochemical complex in Zhejiang Province, which started trial operations this year.

Recent global oil supply issues could keep Saudi Arabian crude oil exports to China, Japan, South Korea, and Taiwan relatively high in the coming months. These four jurisdictions were all initially granted significant reduction exceptions (SREs) for Iranian crude oil imports through May 2019. However, because SREs were not renewed, each country will likely need an alternative to Iranian crude oil.

As a partial substitute for Iranian barrels, crude oil imports to these countries from Saudi Arabia could stay near first-quarter 2019 levels for the coming months. Saudi Arabia’s support of maintaining current OPEC production cuts through March 2020, however, will likely reduce the Saudi Arabian crude oil available for export.

In addition, Saudi Arabia’s seasonal increase in domestic crude oil consumption for power generation could reduce available crude oil export volumes this summer. The increase is dependent on the weather, but higher domestic consumption could be a more significant factor in determining the level of Saudi Arabian crude oil exports in the coming months.

international China Saudi Arabia exports imports United States liquid fuels crude oil oil petroleum
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Royal Dutch Shell Poised To Become Just Shell

On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.

But why this and why now?

There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.

There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.

As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.

The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.

So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.

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