Saudi Aramco, the world’s largest oil producer, has entered into a $3.6 billion deal to purchase a 10% stake in Rongsheng Petrochemical Co, one of China’s oil refining giants.
As part of the agreement, Aramco has committed to supply 480,000 barrels of crude oil per day to Rongsheng’s refinery in Zhejiang province over a 20-year period, while also extending an $800 million credit line to support the oil purchase. This deal will help Aramco to consolidate its refining position in China and secure future sales in the country.
Investing in a new refining and petrochemical plant in China
Saudi Aramco is also investing in a new refining and petrochemical plant in China’s Liaoning province, in partnership with other Chinese companies. Although the project was delayed due to the pandemic, it has now been accelerated with Aramco supplying up to 210,000 barrels of crude feedstock per day. This move demonstrates Aramco’s long-term commitment to China and belief in the fundamentals of the Chinese petrochemicals sector.
Challenged by Russia’s increasing presence
Saudi Arabia’s position as China’s leading crude supplier has been challenged by Russia, which has been actively seeking buyers in China and India since the imposition of Western sanctions following the invasion of Ukraine. Last month, Russia became China’s top supplier of crude oil. However, Aramco’s deal with Rongsheng and the joint investment in the Liaoning plant demonstrate its efforts to maintain its foothold in the Chinese market.
Oil storage and trading contracts
As part of the deal, Rongsheng Petrochemical Co will provide oil storage for Aramco for five years from the start of the supply contract. Rongsheng owns a 51% stake in Zhejiang Petroleum and Chemical Co., which operates China’s largest integrated refining and chemicals complex. Additionally, Aramco Trading Singapore Pte, another subsidiary of Aramco, has signed contracts to trade oil, fuels and chemicals with Rongsheng’s unit in Singapore. In total, Aramco has secured a combined 690,000 barrels per day of oil sales to China in exchange for its investments over the past two days.