Saudi Aramco to Acquire Stake in Chinese Petrochemical Refinery

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OCT 18, 2018: Saudi Aramco signed on Thursday an agreement to invest in a 400,000-bpd refinery and associated petrochemical plants in eastern China as part of Saudi Arabia’s push to expand its downstream business and secure additional markets for its oil.

The Saudi state oil giant signed a memorandum of understanding with the Zhejiang province to invest in the refinery and petrochemical complex and to cooperate in crude oil supply and trading, Reuters reported, citing details released by the city of Zhoushan, where the complex will be built.

Aramco will take over the 9-percent stake of the Zhoushan government in independent refiner Zhejiang Petrochemical, which is developing the project, Abdulaziz M. Al-Judaimi, Aramco’s senior vice president of Downstream, told the Caixin Global news outlet.

According to Caixin calculations, the value of the stake would be US$308 million.

Total investment in the refinery-petrochemical project is expected at around US$25 billion over the next two years, according to Caixin.

Aramco will supply 170,000 bpd of Saudi crude oil to the refinery when it starts operations, Al-Judaimi told Reuters.

Last year, Saudi Aramco started a charm offensive with local governments in China in a bid to secure participation in the downstream business in one of its largest single crude oil customers, according to Reuters.

Since mid-2015, China granted crude oil import licenses to independent refineries in northeast China, which have since increased refinery utilization and crude oil imports.

Aramco’s Al-Judaimi said earlier this year that the oil giant will be heavily investing in increasing its refining capacity and chemicals business in pursuit of securing more downstream markets for its crude oil.

According to trade press reports, as much as 1.4 million b/d of new refinery capacity is planned to open in China by the end of 2019.

The world’s biggest oil supplier, which produces around 10 million bpd of crude oil, aims to increase its refining capacity from 5 million bpd now to 8 million bpd-10 million bpd, and to double its petrochemicals production by 2030, Al-Judaimi told Reuters in an interview in June.

Earlier this month, Aramco agreed in principle to invest in a new oil refinery in Pakistan’s Chinese-funded, deepwater port of Gwadar, on Balochistan’s Arabian seashore, petroleum minister Ghulam Sarwar Khan said.

In the Gwadar refinery agreement, state-owned Pakistan State Oil will partner with the Saudi state oil giant, Khan said.

Details of the refinery’s costs and capacity are yet to be finalized. Pakistan has been requested to provide free land, complete security and utility facilities for setting up an oil refinery of over 100,000 barrel per day capacity, reported The Express Tribune.

Gwadar, built with 100 percent Chinese grant, is the crown jewel of China’s $62 billion investment in Belt and Road Initiative (BRI) projects called China Pakistan Economic Corridor (CPEC)..

Pakistani media suggested that the scope of the Saudi-backed work would include a major petroleum complex at the proposed 80,000-acre “oil city” at the port on the Arabian Sea.

Pakistan’s announcement followed Prime Minister Imran Khan’s two-day trip to Saudi Arabia and the United Arab Emirates in mid September.

PM Khan’s visit was followed up by a Saudi delegation visit to Islamabad in the first week of October. The visiting Saudi delegation, led by energy adviser Ahmad Hamed Al-Ghamdi, visited Gwadar. “They showed an interest to immediately invest in the refinery,” said Petroleum Minister Khan, according to Reuters.

Pakistan wants a new refinery to reduce its $16 billion bill for foreign petroleum by importing more cheaper crude oil to refine itself. And Saudi Arabia wants to add value to its crude oil supply by investing in new or buying stakes in ongoing downstream projects.

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