(Bloomberg) -- Saudi Arabian Oil Co. agreed to build a refinery and petrochemical plant in China, deepening ties between world’s biggest oil seller and its largest importer.
Saudi Aramco, as the company is known, and state-owned China North Industries Group Corp. signed an agreement Tuesday for an integrated refining and chemical facility in Liaoning’s Panjin, according to a statement from China North. The project includes a 15 million tons-a-year (about 300,000 barrels a day) oil refinery, 1 million tons-a-year ethylene cracker, and other chemical projects.
The deal is part of Saudi Aramco’s strategy of investing in refining to help lock in demand for its crude and follows agreements earlier this year for stakes worth $13 billion in refining projects in Malaysia and Indonesia. The project makes Norinco, as China North is known, a player in the country’s energy industry from primarily being a defense manufacturer. It also allows it to invest in Saudi Arabian industries, including railways, power, mining, telecommunications and oil exploration.
“It’s consistent with Saudi Arabia’s policy to diversify their customer base and lock in potential buyers as much as possible, as the global crude glut has turned the game from ‘who can produce more’ to ‘who can sell more,’” said Tian Miao, an analyst at North Square Blue Oak Ltd. in Beijing. “For Norinco, the deal can help it secure stable crude supply, while providing opportunities to sell products and services to Saudi Arabia’s market.”
Saudi Aramco is battling for global market share amid challenges posed by U.S. shale oil producers, Russia and fellow members of the Organization of Petroleum Exporting Countries. The Middle Eastern kingdom plans to float a 5 percent stake in Aramco, which Deputy Crown Prince Mohammed bin Salman has said is worth $2 trillion.
Chinese refiner China Petroleum & Chemical Corp said it was invited to invest in Saudi Aramco’s initial public offering, Chairman Wang Yupu said in March. PetroChina Co., the country’s biggest oil and gas producer, was informed by the Saudi explorer about its listing plan and was evaluating market conditions before making a decision on whether to invest, President Wang Dongjin said at a press conference in Hong Kong the same month. Separately, Saudi Aramco is in talks to invest in PetroChina’s Yunnan refinery, according to Wang.
An initial framework agreement for the Liaoning refinery was first signed during Saudi Arabian King Salman bin Abdulaziz’s visit to Beijing in March.
The refinery in Panjin was first approved by Liaoning province in 2015 and was expected to cost as much as 92.4 billion yuan ($13 billion) and three years to develop, according to the official Liaoning Daily report at the time. Today’s statement didn’t provide a monetary value for the deal.