Saudi Aramco’s China Deals Sweeten an Oil Match
The world’s most successful business chiefs, hoping to conquer the Chinese market, thrash out deals in five-star hotels. Few get to negotiate details in the imperial garden where China’s leaders receive foreign dignitaries.
Yet when the chief executive of Saudi Aramco turned up in Beijing for talks, he did so in a palace surrounded with willow trees, a favored fishing spot of emperors past. But then, Amin Nasser isn’t just any visitor.
He’s made the privilege work. Saudi Aramco announced Monday it would take a 10% stake in Rongsheng Petrochemical Co., a giant oil complex, for roughly $3.6 billion. The deal significantly increases its refining presence in China, but also ties it more closely to a key demand market, ensuring it will supply 480,000 barrels a day to Rongsheng’s refinery in the eastern province of Zhejiang.
A day earlier, Aramco signed a landmark deal with Chinese partners to build a huge refining and petrochemical complex in the world’s biggest oil importer, completing a deal suspended during the pandemic.
That’s a boost in employment and taxes for the northeastern province of Liaoning, where the plant will be based. For China North Industries Group Corp., the country’s biggest weapons maker and a 51% stakeholder in the project, it’s welcome diversification.
But again, there’s plenty of benefit for Aramco. In exchange for taking a 30% stake in that refinery, Nasser will supply as much as 70% of the facility’s crude, or 210,000 barrels a day, that will be turned into 1.65 million tons of ethylene and 2 million tons of paraxylene every year.
The timing is fortuitous. Saudi Arabia’s position as a dominant supplier of crude to China is being challenged by Russia, which needs new markets after it invaded Ukraine and found itself cut off from Europe. Last month, Russia grabbed the top spot as refiners take advantage of cheaper barrels to feed rebounding Chinese demand.
The only catch is that refining capacity isn’t in short supply. The fight to feed China’s refiners, especially the private plants clustered in the eastern province of Shandong, has become a battle between sanctioned nations Russia and Iran, and the swift expansion of the wider integrated oil complex has squeezed margins for all the downstream players.
It’s true beyond China, too. This year and next will mark the sharpest two-year increase in refining capacity for more than four decades, according to RBC Capital Markets.
A total of 1.5 million barrels per day of new global additions or expansions are slated to come online this year, with another 2.4 million to follow next year, RBC estimates. About a third of the combined growth will happen in China.
Nasser has picked his moment.
Published: 27-03-2023
