Saudi Aramco/Sinopec Refinery Deal Highlights Growing Sino-Saudi Energy Axis

Saudi Aramco/Sinopec Refinery Deal Highlights Growing Sino-Saudi Energy Axis

State-owned Saudi Aramco and Chinese state firm Sinopec on 14 January held the official signing ceremony for their 400,000 b/d joint venture export refinery at Yanbu΄. The Yanbu΄ Aramco Sinopec Refinery Company (YASREF) marks the first major Chinese downstream investment in the kingdom and coincided with an official visit by Chinese Premier Wen Jiaobao to the region. Mr Wen’s visit took in Saudi Arabia, the UAE and Qatar and came amid rising tensions with Iran over its nuclear program.

Sinopec signed a memorandum of understanding for the Yanbu΄ project last March after Saudi Aramco’s original partner ConocoPhillips withdrew the previous year (MEES, 21 March 2011). The two firms are spearheading the growing energy relationship between the world’s largest crude exporter and the rising economic power of China. Sinopec is Saudi Aramco’s largest customer, taking about 800,000 b/d of crude, noted Sinopec Chairman Fu Chengyu. “China needs energy to fuel its economic growth,” he noted, while the kingdom “needs a reliable market.” Sinopec and Saudi Aramco also have a (so far unsuccessful) gas exploration joint venture and, together with ExxonMobil, they are also partners in the 240,000 b/d Fujian refinery and petrochemical project.

Saudi Aramco, for its part, has long recognized the growing strategic importance of China to future energy demand. It has been sending students for years to study in Chinese universities. And in addition to plans for a 200,000 b/d joint venture refinery with CNPC in the southern Yunnan province, Saudi Aramco has offices in Beijing, Shanghai and Hong Kong. And for Beijing Saudi Arabia is central to its energy security strategy and likely to become more so. Xi Jinping, the hot favorite to succeed Hu Jintao as Chinese president, and General Secretary of the Communist Party of China, is the architect of China’s aggressive overseas energy investment expansion. Mr Xi has visited the kingdom and met with King ΄Abd Allah and toured Saudi Aramco’s headquarters in Dhahran (MEES, 30 June 2008).

But China has also been a close ally of Riyadh’s rival, Tehran, investing there heavily. It was notable that Mr Wen’s visit took in the UAE, where he signed an energy cooperation agreement with Abu Dhabi, and Qatar, but not Tehran. It would indicate that Beijing was sending a signal to the Islamic Republic as regional frictions and fears of potential disruption to crude supply ratchet up (see page 3). The official Saudi Press Agency, while mentioning his meetings with King ΄Abd Allah, Crown Prince Nayif, and Foreign Minister Saud al-Faisal, said Mr Wen was seen off at Riyadh airport by the head of Saudi intelligence, Prince Muqrin bin ΄Abd al-Aziz, signaling security concerns were a major subject of discussion.

YASREF is scheduled to come on stream in late 2014, Saudi Aramco said. It will produce “90,000 b/d of gasoline, 263,000 b/d of ultra-low-sulfur diesel, along with 6,200 tons/day of petroleum coke and 1,200 t/d of sulphur,” Saudi Aramco said. The project aims to create 1,200 direct and 5,000 indirect jobs.

Copyright MEES 2012.