China ramps up its cooperation with Saudi Aramco

Saudi Arabia and China’s tie-ups intensify with new joint venture, boosting China’s long-term oil supplies and helping both countries to develop valuable downstream production

A Chinese-Saudi joint venture petrochemical company with a total investment of over 71 billion yuan (US$10.6 billion) has been officially inaugurated in the city of Panjin.

The joint venture (JV) is one of the most prominent examples so far of cooperation between the Belt & Road initiative and Saudi Arabia's Vision 2030.

The company comprises Saudi Aramco, Xincheng Group and China North Industries Corporation (NORINCO). The JV will develop a fully integrated refining and petrochemical complex in Panjin, which is in Liaoning Province, with operations expected to begin in 2024.

The JV will have the capacity to refine 15 million tonnes of oil and produce 1.5 million tonnes of ethylene and 1.3 million tonnes of paraxylene a year. The annual sales revenue of the company is expected to exceed 100 billion yuan.

At an official ceremony on March 25, Saudi Aramco president and CEO, Amin Nasser, said that the new company was a clear demonstration of Saudi Aramco's strategy to move from a buyer-seller relationship to one where the company can make significant investments to contribute to China's economic growth and development.

He added that the project would serve as a model for collaboration between China's Belt and Road initiative and Vision 2030 of Saudi Arabia.

The three partners signed an agreement in February. Panjin Xincheng holds a 36% stake, Saudi Aramco 35% and NORINCO 29%.

Panjin lies around 500 kilometres northeast of Beijing, and is a major centre for the petrochemical industry.

Addressing the International Petroleum Technology Conference (IPTC), which was held in Beijing during March 26-28, Nasser said that despite the energy industry facing what he termed a “crisis of perception”, it was undergoing major change thanks to technological breakthroughs that can help energy companies meet the growing demand for energy more efficiently.

Saudi Aramco is harnessing the power of the “Fourth Industrial Revolution” (IR 4.0). Through the power of big data, predictive analytics, artificial intelligence, automation, and 3D visualization, the company is able to explore, produce, and manage its assets more safely, accurately, and cheaply than ever before.

The World Economic Forum recently recognized Uthmaniyah Gas Plant in Saudi Arabia’s Eastern Province as one of its IR 4.0 “lighthouses”. The plant is a leader in the use of advanced analytics and artificial intelligence to slash inspection time, optimize costs and increase safety.

Reflecting on the international energy landscape, Nasser pointed out that oil and gas trade flows were expanding along the Belt and Road route, spreading westwards from China.

“We are building an energy bridge between Saudi Arabia and China that not only meets China’s growing needs for energy, but also the petrochemical products required for most industrial processes," he said. “The true strength of the bridge is fast-moving capital flows, dynamic energy partnerships, and strategic relationships built on mutual trust and a shared vision.”

While in Beijing, CEO Amin Nasser also attended the China Development Forum (CDF), an annual business gathering for China’s senior leadership and representatives from leading global businesses, international organizations, and scholars from China and around the world.

In remarks he delivered during the CDF, Nasser said that China was at another milestone moment for the Belt and Road. Having adequate, reliable, affordable and clean energy will be critical to the continued development of China and the broader global economy, he says.

"I believe that a pragmatic mix of cleaner oil and gas and the new and evolving energy sources will help achieve both of China’s cleaner energy and economic goals," he said. “Saudi Aramco is ready to play a leading role as part of this strategic effort and make more investments, including in energy-related infrastructure, to ensure China – as well as all the Belt and Road partner countries – have access to reliable long-term energy supplies.”

During the CDF, Nasser met with China’s Premier Li Keqiang, who welcomed Saudi Aramco’s investments in the integrated downstream JV in Panjin City.

During HRH Crown Prince Mohammed Bin Salman’s visit to China in February, Saudi Aramco signed several business agreements with Chinese energy entities. In addition to the joint venture in Panjin, two agreements were signed to acquire a 9% stake in Zhejiang Petrochemical’s 800,000 barrels per day integrated refinery and petrochemical complex, located in the city of Zhoushan.

Three MoUs were signed aimed at expanding its downstream presence in the Zhejiang province. The first was signed with the Zhoushan government to acquire its 9% stake in the project.

The second agreement was signed with Rongsheng Petrochemical, Juhua Group, and Tongkun Group, the other shareholders of Zhejiang Petrochemical. Saudi Aramco's involvement will include a long-term crude supply agreement, and access to Zhejiang Petrochemical’s crude oil storage facility to serve its customers in the Asian region.

An integral part of the project includes a third agreement with Zhejiang Energy to invest in a retail fuel network. According to Saudi Aramco, the companies plan to build a large-scale retail network over the course of the next five years in the Zhejiang province. The retail business will be integrated with the Zhejiang Petrochemical complex as an outlet for the refined products produced.

At the time, Saudi Aramco CEO Nasser said that the agreements demonstrated the company's commitment to the Chinese market and would help enhance the strategic integration of its downstream network in Asia. He added that these agreements would further strengthen the relationship with China and Zhejiang province, setting the stage for more cooperation in the future.

Phase I of the project will include a newly-built 400,000 barrels per day refinery, with a 1.4 million metric tons per annum (mmtpa) ethylene cracker unit, and a 5.2 mmtpa aromatics unit. Phase II will see a 400,000 barrels per day refinery expansion, which will include deeper chemical integration than Phase I.

As part of its strategy to accelerate Saudi Aramco's growth in downstream activities, on March 27, Saudi Aramco signed an agreement to acquire a 70% majority stake in Saudi Basic Industries Corporation (SABIC) from the Public Investment Fund of Saudi Arabia.

The private transaction was set at 123.39 Saudi Arabian riyal per share, which valued the deal at 259.125 billion Saudi Arabian riyal (US$69.1 billion). The remaining 30% publicly traded shares in SABIC are not part of the transaction, and Saudi Aramco said that it had no plans to acquire these shares.

Headquartered in Riyadh, Saudi Arabia, SABIC has global operations in over 50 countries with 34,000 employees. In 2018, SABIC’s consolidated production volume across its various business units was 75 million metric tons, and recorded net income of US$5.7 billion, annual sales of US$45 billion, and total assets of US$85 billion.

“This is a win-win-win transaction and a transformational deal for three of Saudi Arabia’s most important economic entities," says Yasir Othman Al-Rumayyan, managing director, Public Investment Fund of Saudi Arabia.

“This transaction is a major step in accelerating Saudi Aramco’s transformative downstream growth strategy of integrated refining and petrochemicals," adds Amin Nasser.

Abdulaziz Al-Judaimi, senior vice president of Downstream, Saudi Aramco, commented that Saudi Aramco’s downstream strategy is focused on meeting global customer needs by securing outlets for its crude oil through the expansion and growth of its refining system and deepening its integration with petrochemicals production. 

"We are pursuing partnerships and acquisitions where we create long-term value, and developing groundbreaking crude-oil-to-chemicals technologies," he adds. "SABIC is a good strategic fit and a solid platform to support our continued investment for future growth in petrochemicals – the fastest-growing sector of oil demand.”

The acquisition is in line with Saudi Aramco’s long-term strategy to drive growth through an enhanced downstream portfolio by increasing global participated refining capacity from 4.9 million to 8-10 million barrels per day by 2030, of which 2-3 million barrels per day will be converted into petrochemical products. This downstream portfolio will consume significant quantities of Arabian crude oil.

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