December 19, 2022 [S&PGlobal] – China, the world’s largest buyer of crude, has opened the door to trading crude oil and natural gas in its local currency, rather than the US dollar, although it’s not clear a change would happen anytime soon.
China’s president Xi Jinping mentioned on his trip to Riyadh last week that the Shanghai Petroleum and Natural Gas Exchange would be “fully utilized in RMB settlement in oil and gas trade.”
Most commodities including crude oil are traded in US dollars. The renminbi trade was part of several “priority areas” that China is ready to work on with Gulf countries over the next three to five years.
“China will continue to import large quantities of crude oil on a long-term basis from GCC countries, and purchase more LNG,” Xi said, according to a transcript of his remarks in the China Daily on Dec. 10. The remarks were made on Dec. 9. It is not clear if any countries in the Gulf Cooperation Council are considering a switch to yuan from US dollars. The GCC is made up of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the UAE.
“We will strengthen our cooperation in the upstream sector, engineering services, as well as storage, transportation and refinery of oil and gas,” Xi said.
Saudi Arabia delivered 1.76 million b/d of crude to China in January-August this year, lifting its market share in the world’s biggest crude importer to 17.7% from 16.9% a year earlier, despite the volume edging down 0.3% year on year, according to Chinese customs data.
China, which has also made critical inroads among the Gulf countries in renewables by selling solar parts, is keen to develop the relationship further, Xi said in his address.
The other priority areas he mentioned were progress in finance and investment cooperation, expansion into new areas of cooperation on innovation, science and technology, breakthroughs in aerospace cooperation and new highlights in language and cultural cooperation.
An “all-dimensional energy cooperation” was first in his priorities.
“The two sides will work more closely on clean and low-carbon technologies involving hydrogen, energy storage, wind and photovoltaic power and smart power grids, as well as localized production of new energy equipment,” he said.
“We will jointly establish a China-GCC forum on peaceful use of nuclear technology and a China-GCC nuclear security demonstration center,” he added.
Saudi Arabia currently has no nuclear power generation but has said it will add around 17 GW of nuclear capacity by 2040 and has ambitions to bring two reactors with a combined capacity of 3.2 GW online within the next decade.
The kingdom has been in discussions with China to develop nuclear technology and has previously held talks with the US under former President Donald Trump’s administration to secure a so-called “123 agreement” that would allow it to obtain technology from the US.
The agreement would limit the enrichment of uranium for arms purposes.
The UAE is the only Arab nation to have nuclear power reactors. The country’s South Korean-developed Barakah nuclear power plant added its unit 3 to the grid in October.
China and Saudi Arabia have also been exploring joint deals in the downstream crude sector, where the Middle Eastern country sees huge opportunities for development of various chemical product lines.
Saudi Arabia has plans to convert around 4 million b/d of its crude into chemicals, as it diversifies its strategy from sale of crude to more complex, less-carbon intensive products.
During Xi’s visit, state oil company Saudi Aramco also signed an agreement with Chinese company Shandong Energy to explore integrated refining and petrochemicals opportunities in China, the companies said in a statement Dec. 9.
Aramco, the world’s largest oil-exporting company, will explore a potential crude supply agreement and chemicals offtake agreement, which will see Aramco building a downstream hub in the eastern Shandong province.
The two sides have an “expansive scope for cooperation, especially in oil and gas resources development and integrated refining and petrochemicals development along the whole industrial chain,” Li Wei, chairman of Shandong Energy Group, said.
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