Saudi Aramco’s landmark oil investments in China this week will help secure its position in a market that has become a fiercely fought-over battleground for the world’s top producing nations, from Iran to Russia.
(Bloomberg) —
Saudi Aramco’s landmark oil investments in China this week will help secure its position in a market that has become a fiercely fought-over battleground for the world’s top producing nations, from Iran to Russia.
But by taking a share in key refineries, OPEC’s largest producer is doing more. For one, it is signaling confidence in the resilience of Chinese demand, a bright spot for global energy markets as China reopens, and set to expand more than 5% this year.
It’s also bolstering a corner of the refining industry that often plays second fiddle to state-owned behemoths.
The $3.6 billion investment to take a 10% stake in private processor Rongsheng Petrochemical Co. is a watershed moment for China’s independent refining sector, a loose grouping crew of companies that range from sophisticated refineries rivaling state-owned Sinopec and PetroChina, to smaller companies frequently tangled in tax and legal battles.
Rongsheng stock surged 10% on Tuesday, a day after the announcement, hitting its highest value since September.
Global oil refinery expansion is expected to center in China, India and parts of Asia, while Europe and the US consolidate and investments focus on the green sector.
“China’s demand is still growing and will keep growing for a long period of time,” said Lin Boqiang, dean of Xiamen University’s China Institute for Studies in Energy Policy. China needs stable energy supply and so will focus on securing feedstock for its refineries, Lin added, while Aramco sees an attractive market.
Aramco’s investments and ownership in Chinese refineries — and the nearly 700,000 barrels a day of crude it will supply, which comes to more than the daily consumption of a medium-sized European economy like the Netherlands — give the producer an edge over its competitors, which typically sell crude via yearly-reviewed contracts or on a spot basis.
Countries such as Iran and Russia, left with limited options due to Western sanctions, have had to deeply discount their cargoes in order to entice buyers in China and, in some occasion, offered free shipping and other perks.
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