Saudi Aramco is suspending its investment in a joint venture developing a US$10-billion refinery and petrochemicals complex in China amid capex cuts, Bloomberg reported on Friday, citing people with knowledge of the plans.
The Chinese will proceed with the project, while the joint venture—in which Saudi Aramco holds 35 percent—remains an option for the future, according to Bloomberg’s sources.
In February 2019, Saudi Aramco signed an agreement to form the largest Chinese-foreign joint venture with NORINCO and Panjin Sincen to develop a fully integrated refining and petrochemical complex in China. The US$10-billion complex will have a 300,000-bpd refinery with a 1.5 million metric tons per annum (mmtpa) ethylene cracker and a 1.3 mmtpa paraxylene unit. Under the terms of the deal, Saudi Aramco was supposed to supply up to 70 percent of the crude feedstock for the complex, which was expected to start operations in 2024.
Last year, Saudi Aramco signed several such deals in order to lock in future demand for the Kingdom’s oil.
This year, however, the oil price and demand crash upended all plans of major oil companies, including those of Saudi Aramco, whose revenues, profits, and cash flows dropped with the collapse in prices.
In the second quarter, Aramco recalibrated capex and optimized operations as it reported a plunge in profits. The oil firm, however, pledged to stick to its plan to distribute dividends of US$18.75 billion for the second quarter despite taking a severe hit to its earnings.
Aramco guided in the Q2 results release for capex at the lower end of the US$25 billion-US$30 billion range for 2020.
Last week, the Financial Times reported that Aramco was considering additional cuts to its capex in order to be able to pay its massive dividends.
If oil prices continue to hold at the current levels at around $45 a barrel Brent Crude, Aramco will target capex of between US$20 billion and US$25 billion between 2021 and 2023, according to FT’s sources.
By Tsvetana Paraskova for Oilprice.com
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