Two weeks after Saudi Arabia and Iran resumed diplomatic relations in a deal brokered by China, the Saudi state-owned oil giant Aramco disclosed plans to invest over $15 billion to expand its oil and chemical presence in China.
Amount Aramco is investing in China’s oil and chemical industry
On March 26, Aramco said it would spend $12.2 billion to set up a joint venture with Chinese partners in Panjin, in the northeastern province of Liaoning. The venture will build a refinery and chemical complex with capacity to process 300,000 barrels of oil per day. Aramco, which has a 30% stake in the joint venture, will supply much of the oil.
Set for completion in 2026, the complex will include an ethylene cracker and a large p-xylene facility.
The company said the next day that it would spend $3.6 billion to acquire a 10% stake in Rongsheng Petrochemical, based in the southeastern province of Zhejiang. Aramco will supply 480,000 barrels of crude oil per day to a Rongsheng affiliate under a long-term sales agreement.
The two deals, which significantly expand Aramco’s oil sales as well as its chemical presence in China, follow Chinese president Xi Jinxing’s visit to Saudi Arabia in December and were signed just before his March 28 phone conversation with Saudi crown prince Mohammed bin Salman Al Saud.
Wang Jin, an associate professor at the Institute of Middle East Studies at China’s Northwest University, says the Saudi investment in China will boost Chinese demand for its oil and expand the downstream market.
“China’s broker role in the Middle East and the United States’ gradual retreat in the region pushed Saudi Arabia to increase its investments in China,” Wang says.
During Xi’s visit, the two countries reached cooperation agreements extending beyond oil and refining to cover hydrogen development, solar power, 5G telecommunication, and other science and technology fields. All the deals use the Chinese renminbi rather than the US dollar for transactions.
Pan Yigang, deputy director at the Zhejiang Development and Planning Institute, a government think tank, says using renminbi will spur Saudi demand for Chinese goods and technology, which may translate to more Saudi investment in China’s refining and chemical sectors.