SINGAPORE, 27 March (Reuters) – Saudi Aramco (2222.SE), has increased its multi-billion-dollar investment in China by finalising and upgrading a joint venture in northeast China and acquiring a larger stake in a privately-controlled petrochemical company.
Aramco will supply the two Chinese companies with 690,000 barrels per day of crude oil. This would increase its position as China’s top supplier of the commodity.
Aramco announced Monday that it had agreed to buy a 10% stake (002493.SZ), in the privately-controlled Rongsheng Petrochemical Co Ltd for $3.6 billion.
Aramco said that the deal included the supply of 480,000 barrels per day of crude oil to Zhejiang Petrochemical Corp (ZPC), which is controlled by Rongsheng, for a period of 20 years.
It is a follow-up to a preliminary agreement Aramco made with Zhejiang provincial governments in 2018 for a 9.9% stake in ZPC.
These deals are the largest announced since Chinese President Xi Jinping visited China in December. He called for oil trade to be done in yuan, a move which would weaken America’s dominance in global commerce.
Aramco’s investments are a sign of Riyadh’s growing ties with Beijing, which have raised security concerns for Washington, Riyadh’s traditional ally.
China brokered the deal between Iran and Saudi Arabia, which saw them re-establish their relations earlier in the month. This was after years of hostilities that had led to conflicts throughout the region.
The secret role played by Beijing in the breakthrough has shaken up the Middle East’s dynamics, where the United States has been for decades the main dealmaker.
Saudi Arabia and other Gulf states, like the United Arab Emirates, have stated that they will not choose sides in an increase in polarisation global politics and that they are diversifying partners to support national economic and security interests.
This deal also highlights the growing competition between Saudi Arabian and Russian crude supplies to China.
Moscow was sanctioned by the West for its involvement in the war in Ukraine. Russia was forced to divert its oil from Europe and sell it at steep discounts to China.
In the first two months, Russia overtook Saudi Arabia as China’s top oil supplier.
Aramco is already selling crude oil to the east China plant, which operates an 800,000.bpd refinery. These agreements are renewed each year.
The Rongsheng agreement follows Aramco’s Sunday agreement with Chinese partners for an oil refinery in Liaoning, northeast China. It is expected to begin in 2026 to meet China’s growing demand of fuel and chemicals.
The Liaoning project, in the city of Panjin, will be Aramco’s second major refining-petrochemical investment in China and follows the world’s top oil exporter reporting a record profit of $161 billion in 2022.
Huajin Aramco Petrochemical Company will build and manage the Panjin complex. It will house a 300,000. barrels per day (bpd), oil refinery, and cracker with an annual production capacity of 1.65 Million tonnes of ethylene, and 2,000,000 tonnes of paraxylene.
UPGRADE
Partner Panjin Xicheng Industrial Group stated that the project in Liaoning will cost 83.7 billion yuan ($12.2billion) on Sunday.
This upgrade is a continuation of the joint venture’s original plan to build a $10B plant. It includes a 1.5M tpy ethylene refinery and a 300,000-bpd refinery.
Aramco stated that construction at the Panjin complex will begin in the second quarter once the project has received all the necessary administrative approvals. It added that the plant is expected to be fully operational in 2026.
Aramco will supply the feedstock for the plant at up to 210,000 barrels per day of crude oil.
The Chinese state-owned NORINCO Group is a manufacturer of military equipment and 51% of HAPCO. Panjin Xincheng and Aramco hold stakes of 30%, and 19%, respectively.
According to a post on the website of the provincial government, Aramco signed a memorandum with Guangdong, a southern Chinese province, to explore cooperation in various sectors, including energy, finance and innovation.
Guangdong is China’s largest province economy. Global firms such as Exxon Mobil (XOM.N), and BASF (BASFn.DE) have drawn to it large-scale petrochemical complexes that produce high-value chemicals.
Aramco has been increasing its China presence. Aramco and Shandong Energy reached another agreement last year to explore a possible crude supply agreement as well as a chemical products offtake deal.
Saudi Aramco, a South Korean affiliate of S-Oil Corp. (010950.KS), also broke ground earlier this month on a $7-billion project to produce petrochemicals out of crude oil at its Ulsan port city refining facility.
($1=6.8778 Chinese yuan renminbi)
Reporting by Florence Tan, Chen Aizhu, and additional reporting by Andrew Hayley, Aziz El Yaakoubi, Riyadh, and Ahmad Ghaddar, London; Editing and editing by Sonali Paul and Christian Schmollinger; Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
