Saudi Aramco is trying to find new buyers for its crude oil in China because of increasing competition from Russian and US producers. In this effort the Saudi state owned oil major is also strategizing towards a process of partnering with independent refiners and newcomers into the industry.
According to reports quoting industry sources, Saudi Aramco has for years dealt exclusively with major state-owned Chinese energy companies but now it is clearly changing its strategy in China.
However the returns of the change may not be the same as earlier. According to analysis, most of the new business partners of Aramco clearly do not have the same scale and marketing ability as the Chinese state-run companies which dominate China’s refining, petrochemical and retail fuel sector such as PetroChina and Sinopec Corp.
According to reports, it has been tears that Aramco has been prodding PetroChina to develop a refining plant in Yunnan province in the southwest of China. However the disagreement between the two companies over economics and marketing rights resulted in the plans being shelved. .
Hence, as a changed strategy Saudi Aramco has not decided to approach and partner with new and independent companies in the refining and petrochemical segment in China.
An agreement for the development of a $10 billion refining and petrochemicals complex in the city of Panjin, in the northeast province of Liaoning, was reached between Aramco and Chinese defence conglomerate Norinco in the form of a joint venture in February.
In order to increase its activities in Zhejiang province in the east of China, Aramco also signed memorandums of understanding. Taking up a 9 per cent stake in a 800,000 barrel per day (bpd) refinery and petrochemicals complex in the city of Zhoushan, south of Shanghai, belonging to Zhejiang Petrochemical is one such step.
This shift in strategy of Aramco clearly reflects its strategy to partner with new buyers, which include smaller, independently run refiners that are known as “teapots”.
“The private players are more open and entrepreneurial. They also need the oil and the experience,” said one source familiar with the recent deals in China and quoted in a recent media report. .
This changed strategy is already yielding results for Aramco as in the first quarter of the current year, it is west to increase its oil exports to China to 1.5 million bpd which is almost the same as that from Russia which has been the top oil exporter to China since the last three years.
According to reports, despite signing a memorandum of understanding between PetroChina and Aramco in 2011 for supplying oil to the Yunnan plant, nothing has matured on the project so far and talks between the two companies were stalled in mid-2018.
“Yunnan went on for five years and it is dead now,” said one the reports quoting one of the industry sources.
“Independents have a smaller footprint across the value chain and less experience in trading,” said Michal Meidan of Energy Aspects. “The challenge of partnering with independents is precisely the limits of access to the retail market.”
(Adapted from MoneyControl.com)