Saudi Aramco has agreed to acquire 10 per cent of a Chinese oil refiner for $3.6bn in the second in a pair of deals set to strengthen the relationship between the Middle Eastern state oil company and its biggest market.
Under the arrangement with Shenzhen-listed Rongsheng Petrochemical Co, Saudi Aramco will supply 480,000 barrels a day of Saudi crude to China’s largest integrated refining and chemicals facility in Zhejiang province.
The investment comes a day after Saudi Aramco announced a joint venture with two other Chinese companies to build a new 300,000 b/d refinery and petrochemicals complex in China’s north-east.
The combined deals promise to increase Saudi Aramco’s supply contracts with China by up to 690,000 b/d just as Saudi Arabia’s share of the world’s largest oil import market is coming under pressure from a rise in shipments of discounted crude from Russia.
Russia has offered cut-price deals to ramp up oil exports to countries including China and India after western sanctions following President Vladimir Putin’s full-scale invasion of Ukraine last year blocked access to European markets.
Russia overtook Saudi Arabia as China’s biggest supplier of crude in January and February, delivering approximately 2mn b/d, according to Chinese customs data. Saudi Arabia supplied approximately 1.7mn b/d in the first two months of the year, down from about 1.8mn b/d a year earlier.
Speaking earlier this month after Saudi Aramco reported a record $161bn in profits for 2022, chief executive Amin Nasser told the Financial Times that the company’s long-term contracts with Chinese buyers were key to its ability to retain market share in China without a need to discount its crude.
Mohammed Al Qahtani, executive vice-president of downstream, said the investment in Rongsheng demonstrated the company’s “long-term commitment to China” and “belief in the fundamentals” of the Chinese petrochemicals sector. “It also promises to secure a reliable supply of essential crude to one of China’s most important refiners,” he said in a statement on Monday.
The facility owned and operated by Rongsheng’s Zhejiang Petroleum and Chemical Co can process up to 800,000 b/d of crude oil a day and produce 4.2mn metric tonnes of ethylene a year. The deal is set to close by the end of the year and remains subject to approvals, Saudi Aramco said.
Helima Croft, head of commodities research at RBC Capital Markets, said the deals demonstrated the importance of the Chinese market and the weakening of ties between Saudi Arabia and the US. She said: “This is further confirmation that the economic future resides in the east and that Riyadh will look to avoid getting dragged into a Washington-Beijing dispute.”
The facility Saudi Aramco plans to build in Panjin city in north-east China, announced on Sunday, is a partnership between Saudi Aramco, which will own 30 per cent, and China North Industries Group, the country’s biggest weapons manufacturer, which will own 51 per cent.
Construction is due to start in the second quarter of 2023 and the facility, which will process 210,000 b/d of crude from Saudi Aramco, aims to be fully operational by 2026. Panjin Xincheng Industrial Group will own the remaining 19 per cent.
Jim Krane, a Gulf energy expert at Rice University’s Baker Institute for Public Policy, said the deals, which follow similar Saudi Aramco investments in China, India, South Korea and Malaysia, were best viewed as a “climate action strategy” to ensure it will have committed buyers for its crude even if consumption starts to shrink in other parts of the world.
“As the OECD countries’ oil demand declines, big markets in Asia is where the action is shifting,” he said