February 14, 2022 [SPGlobal] – Saudi Aramco has restarted discussions regarding a joint project to build a 300,000 b/d refining and petrochemical complex in Northeast China, sources with direct knowledge of the matter told S&P Global Platts Feb. 9, as the oil giant looks to take advantage of surging crude oil prices.

“Details regarding the JV’s share stakes, production technique, and product sales issue are to be discussed after the talks was reignited,” one of the sources said, adding that it was still a long way before a deal can conclude.

Aramco’s move coincides with Russia’s Rosneft signing a 10-year deal with China National Petroleum Corp. to supply 100 million mt, or 200,821 b/d, crude oil Feb. 4, demonstrating efforts by China’s top crude suppliers to secure outlets in Asia’s biggest oil consumer.

Aramco had initially signed a deal with China’s North Industries Group (Norinco) and Panjin Sincen during a visit by Crown Prince Mohammed bin Salman to Beijing in February 2019 to form Huajin Aramco Petrochemical Co. and build a $10 billion integrated refining and petrochemical complex in Panjin city, Liaoning province.

Aramco pulled out of the joint venture in August 2020 when international crude prices crashed because of the COVID-19 outbreak, leaving Norinco to develop the project by itself, Platts reported earlier.

“High crude prices have reversed the fortunes of the company (Aramco), and it is a good time for it to explore new investment opportunities and find new outlets for its crude,” said Grace Lee, senior analyst with S&P Global Platts Analytics.

The April cash Dubai assessment was at $90.405/b Feb. 8, up 51.3% year on year, Platts data showed.

Addressing challenges

A fresh deal will need to consider more issues in the Chinese refining sector, including the imminent transportation fuels consumption peak in about 2025, Beijing’s aim to eliminate oil products exports, tightening controls in refinery operations and tax collection, and consolidation in the sector, which will pose challenges for a new refinery, a second source said.

“There has been no progress in the project since Aramco pulled out in 2020,” the second source said.

The joint project was originally designed to meet 300,000 b/d crude distillation capacity, with a 1.5 million mt/year ethylene cracker and a 1.3 million mt/year paraxylene unit.

The venture was seen as an attempt by Aramco to boost its downstream investments in China, as it intended to supply up to 70% of the crude feedstock for the Panjin complex that was to start operations in 2024.

The state-run Aramco is Saudi Arabia’s solo crude producer. It was China’s top crude supplier in 2021, delivering 1.76 million b/d of crude, followed by Russia at 1.6 million b/d, data from China’s General Administration of Customs showed.

Norinco, a Chinese state-run group for the research and production of military equipment and weapons, owns an oil trading arm, Zhenhua Oil, and two refineries, North Huajin Chemical and Panjin Northern Asphalt.

Downstream investments

Aramco said in October 2018 that it would acquire a 9% stake in Zhejiang Petroleum and Chemical (ZPC) that doubled its capacity to 800,000 b/d in 2021, Platts reported earlier.

No further official announcement about this deal has been made since.

Aramco currently has stakes in the 280,000 b/d Fujian Refining and Petrochemical Co., or FREP, and Sinopec’s marketing arm, Sinopec SenMei (Fujian) Petroleum Co., or SSPC.

FREP is a joint venture between state-owned Sinopec, the Fujian provincial government, Aramco, and ExxonMobil, each holding a 25% stake. It mainly processes Saudi crude.

Oil products from the refinery are mainly sold in China’s domestic market through SSPC, which is held by Sinopec (55%), Aramco (22.5%) and ExxonMobil (22.5%).

Aramco was once in talks with state-owned PetroChina to acquire a stake in the land-locked 260,000 b/d Yunnan Petrochemical in Southwest China. But it pulled out of the talks and decided to continue supplying crude, Platts reported earlier.

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