Domestic strategy expands to emerging economies
In recent years, many resource-rich NOCs have fed their crude into domestic refineries to meet demand growth and benefit from a low-risk investment. But now their focus is shifting to international refining in emerging economies, particularly in Asia, where demand is growing. These resource-rich, export-oriented NOCs can provide capital for these refineries while securing additional outlets for their crude production.
The challenges of this investment strategy, however, are complex. Companies must carefully consider the host country's ability to absorb large volumes of additional product supply. For instance, both China and India are large growth markets, but are structurally surplus refining capacity – any new investment in refining capacity would only further increase product exports.
Indonesia: desirable demand growth and fuel balance
With China and India forecast to remain net exporters in 2025, Indonesia presents attractive near-term investment opportunity given its current production deficit and projected demand growth. Resource-rich NOCs, Rosneft and Saudi Aramco, recently both showed considerable interest in joint venture opportunities in Indonesia.
Vertical integration for the win
Beyond commercial returns, international refining also means more employment and capability development opportunities, as well as stronger inter government relations. And in a future environment of declining global oil demand, ownership of highly competitive refining assets could be critical to sustaining upstream supplies for NOCs.
The 'winners' in this strategy will be those resource-rich NOCs with integrated business models that will sustain them in a competitive overall supply chain as global demand falls.