Aramco Deal Enhances Saudi-China Energy Ties

Saudi Aramco oil pipe lines in Jubail (Suresh Babunair)

The Lede: Saudi Arabia’s state-run oil company Aramco announced a plan to invest billions of dollars in China’s downstream petrochemicals industry which includes the construction of a new refinery

What We Know:

Aramco will acquire a 10% interest in China's Rongsheng Petrochemical Co. Ltd. valued at $3.6 billion. A long-term sales agreement projects that Aramco will supply 480,000 barrels a day to Rongsheng affiliate Zhejiang Petroleum and Chemical Co. Ltd., which owns and operates China's largest refining and chemicals complex.
The Saudi oil company has also included in the plan the construction of a new refinery and petrochemical complex in the Liaoning Province of northeastern China through a joint venture. The North Huajin Aramco Petrochemical Company, which Aramco holds a 30% stake in, would supply 210,000 barrels per day of crude to the complex.

The Background: Saudi Arabia and China have cultivated closer ties with each other in recent years. In early March, Saudi Arabia and Iran agreed to restore diplomatic ties for the first time since 2016 in a deal brokered by China. Correspondingly, Aramco has been looking toward future cooperation with Chinese companies. Recently, Aramco also announced that it would be partnering with Baoshan Iron & Steel Co. to produce steel plates in Saudi Arabia in an effort to reduce its carbon footprint. It also signed a letter of intent to be part of a new entity being created by Renault SA and Zhejiang Geely Holding Group Co. with the goal of developing more efficient and lower-emission engines and hybrid systems.

Likely Outcomes:

This announcement reflects the goodwill relations and state visits between China and Saudi Arabia. China has become no stranger to big ticket multi-national spending projects and this announcement adds another to the list. If the project proves fruitful, this may pave the way for Saudi Arabia to consider other areas of cooperation while other regional states take an interest in opportunities with China. Other oil-producing countries may take particular interest in the project’s success.
Meanwhile, Saudi Arabia recently announced a massive contract to buy commercial planes from the U.S. manufacturer Boeing. In areas where the U.S. has provided Saudi Arabia with value, Riyadh will continue to leverage its advantage. Both countries have an interest in continuing military cooperation and economic exchange, but the U.S.'s share of influence with Saudi Arabia and the Persian Gulf, in general, will continue to lose some altitude and luster to China if there continues to be successful cooperation.

Quotables:

“This announcement demonstrates Aramco’s long-term commitment to China and belief in the fundamentals of the Chinese petrochemicals sector. It also promises to secure a reliable supply of essential crude to one of China’s most important refiners." – Mohammed Al Qahtani, Executive Vice President of Aramco

“We see a major win-win opportunity to build a world-leading, integrated downstream sector in China, with special emphasis on the high conversion of liquids directly into chemicals as part of our broader liquid-to-chemicals business expansion plans” – Amin Nasser, President and CEO of Aramco

Good Reads:

Saudi Aramco to invest billions in Chinese petrochemicals (ABC News)

Saudi Aramco signs deals with Chinese partners to build refinery (SCMP)

Saudi Aramco Touts 'Commitment To China' With Petrochemical Deals (Barron’s)