Saudi Aramco bolsters China investments with $3.6bn refinery deal

The state-owned oil major said the deal includes the supply of 480,000 bpd of crude oil to Rongsheng refinery for 20 years

by Kudakwashe Muzoriwa

March 27, 2023

Saudi Aramco, the world’s biggest oil producer, has agreed to acquire a 10 per cent stake in China’s oil refining giant Rongsheng Petrochemical for $3.6bn (SAR784bn), a deal that will significantly expand the state-owned energy giant’s refining presence the country.

The oil major said the deal includes the supply of 480,000 bpd of crude oil to Rongsheng-controlled Zhejiang Petroleum and Chemical Company (ZPC) for 20 years. Aramco Overseas Company, a wholly owned subsidiary of Aramco, will acquire an interest in Rongsheng.

Mohammed Y. Al Qahtani, Aramco executive vice president of downstream said the transaction is an important acquisition for the company in a key market, “supporting our growth ambitions and advancing our liquids to chemicals strategy.”

Rongsheng owns a 51 per cent equity interest in ZPC, which in turn owns and operates the largest integrated refining and chemicals complex in China with a capacity to process 800,000 bpd of crude oil and to produce 4.2 million metric tons of ethylene per year.

We expand our presence in China by acquiring a 10% stake in Rongsheng Petrochemical, supporting our growth ambitions and advancing our liquids-to-chemicals strategyhttps://t.co/h31BAYgy3T #aramco pic.twitter.com/1A4PZ736zT

— aramco (@aramco) March 27, 2023

The deal involves an off-market secondary sale of Rongsheng shares by majority shareholder Zhejiang Rongsheng Holding Group, with the potential for future collaboration between the parties in trading, refining, chemicals production and technology licensing. It is expected to close at the end of the year, subject to regulatory approvals.

Aramco ramps up Asia presence

Meanwhile, the deal comes a day after Aramco’s joint venture (JV) in China, Huajin Aramco Petrochemical Company (HAPCO), said it will start the construction of a major integrated refinery and petrochemical complex in the country’s northeastern Liaoning province in Q2 2023, accelerating developments that were paused during the pandemic.

Read: Aramco, China JV to start work on refinery and petrochemical complex

Aramco, which owns a 30 per cent stake in HAPCO, will supply up to 210,000 bpd of crude oil feedstock to the complex. China’s NORINCO Group and Panjin Xincheng Industrial Group own 51 per cent and 19 per cent, respectively.

The state-owned oil company has secured a combined 690,000 barrels per day of oil sales to China in exchange for its investments over the past two days following the partnership with Rongsheng and the HAPCO JV.

On Sunday, Aramco’s president & CEO Amin Nasser told the China Development Forum 2023 that the company is doubling down on China’s energy supply including new lower carbon products, chemicals and advanced materials – all supported by emissions reduction technologies.

“We see a major win-win opportunity to build a world-leading, integrated downstream sector in China, with special emphasis on the high conversion of liquids directly into chemicals as part of our broader liquid-to-chemicals business expansion plans,” Nasser said.

Aramco Trading Singapore, another unit of Aramco, also signed contracts to trade oil, fuels and chemicals with Rongsheng’s unit in Singapore.

Investment strategy

The oil major said its capital expenditure surged 18 per cent year-on-year to $37.6bn in 2022 as progress continues on multiple fronts to deliver reliable, affordable and more sustainable energy. It expects its spending in 2023 to range between $45bn and $55bn including external investments.

Read: Saudi Aramco profit surges to $161.1bn in 2022, raises dividend

With a market capitalisation of SAR7.1tn as of March 27, 2023, reported a record net income of SAR604.1bn for 2022, a 46.5 per cent increase from $110bn a year earlier on higher oil prices, increased volumes sold and improved margins for refined products.

Saudi Arabia’s state oil firm aims to achieve net zero emissions from its operations by 2050.

The company unveiled a $1.5bn sustainability fund to support an inclusive global energy transition last October to invest in the technology needed to support a stable and inclusive energy transition.

The fund plans to invest in technologies that support the company’s net-zero 2050 ambition in its wholly-owned operational assets and the development of new lower-carbon fuels.