Saudi Aramco to set up JV with two Chinese firms in $10b refinery deal

An employee inspects oil transport pipes at the Juaymah tank farm at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Ras Tanura, Saudi Arabia. Photographer: Simon Dawson/Bloomberg

Saudi Arabia reaffirmed its interest in the Chinese market with a deal to build a $10 billion oil-refining complex, as it seeks to fend off competition for crude sales from fellow OPEC members and Russia.

State-run Saudi Arabian Oil Co., known as Aramco, agreed to set up a joint venture with two Chinese companies for the processing and petrochemical facility in the world’s biggest oil importing nation, according to an emailed statement Friday. The kingdom will supply as much as 70 percent of the crude needed by the complex, which will include a 300,000 barrel-a-day refinery, an ethylene cracker and a paraxylene unit.

The deal, signed while Crown Prince Mohammed Bin Salman is in Beijing, is part of a strategy to secure demand for Saudi crude by investing in energy assets across Asia — the world’s biggest oil-consuming region. Over the past week, the kingdom’s pledged billions of dollars for projects in India and Pakistan. Other investments agreed recently include stakes in South Korea’s Hyundai Oilbank Co. and a petrochemical complex in Malaysia.

Aramco is forming partnerships as the kingdom battles for market share across the globe and tackles challenges posed by the U.S. shale boom, Russia and other members of the Organization of Petroleum Exporting Countries. The world’s biggest crude exporter has been topped by Russia in oil sales to China over the past couple of years and competition has intensified after OPEC committed to end a market glut, with the Saudis leading supply curbs.

The Saudis will partner with China North Industries Group Corp., known as Norinco, and Panjin Sincen to form a company — Huajin Aramco Petrochemical Co. Ltd., according to Friday’s statement. The project is expected to start operations in 2024. The ethylene facility and PX unit will have annual capacity of 1.5 million tons and 1.3 million tons, respectively.

“Our agreement today with Norinco and the Liaoning province is a clear demonstration of Saudi Aramco’s strategy to move from beyond a buyer-seller relationship, to one where we can make significant investments to contribute to China’s economic growth and development,” Chief Executive Officer Amin Nasser said.

Saudi Aramco will take a 35 percent stake in the new company, while Norinco and Panjin Sincen will hold 36 percent and 29 percent, respectively. Aramco also plans to establish a fuels retail business in China, according to the statement. By the end of 2019, a “three-party Marketing JV Company” is expected to be formed between Saudi Aramco, North Huajin and Liaoning Transportation Construction Investment Group Co. to develop a retail fuel stations network in the target markets, it said.

An initial framework agreement for the Liaoning refinery was first signed during Saudi Arabian King Salman bin Abdulaziz’s visit to Beijing in March 2017. Aramco had announced that it would build a 300,000 barrel-a-day refinery with a 1 million ton-a-year ethylene cracker with Norinco.

Slew of Deals

In October last year, the Saudis said they will acquire a share of a 400,000 barrel-a-day plant at Zhoushan island in China’s Zhejiang province, and committed to supplying the Rongsheng Group refinery with a portion of its crude requirements.

Aramco’s looking beyond China as well. It announced plans to take a 20 percent stake in South Korean oil refiner Hyundai Oilbank. It’s also helping finance a $27 billion petrochemical complex in Malaysia and has signed an MoU with Pakistan to build a refinery. The firm also expressed interest in investing in India’s petrochemical manufacturing assets earlier this week.

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