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Aramco is in talks with Chinese petrochemical producers that are building new plants to supply them with crude, a company vice-president told Bloomberg. The talks are part of Saudi Arabia’s efforts to gain more exposure to refining and petrochemicals and reduce its dependence on crude oil production and sales.
Speaking at the China International Oil and Gas Trade Congress, Aramco marketing department vice-president Mushabab Al-Qahtani said, “China is one of our oldest and largest customers. In recent years, growth in China has slowed as incremental demand preferred low-sulfur crude and as Aramco is implementing OPEC cuts. However, Aramco still has ambitious plans for China.”
The new market niche was opened by new energy players in China that have the support of the government even though they are not stated-owned. Unlike the so-called teapots that focus on fuels almost exclusively, these new companies, such as Rongsheng Petrochemical Co. and Hengli Group, are investing billions in petrochemical complexes, with the first of these new facilities to come online next year.
This would be Rongsheng Petrochemical’s US$24-billion plant on Zhoushan Island, which will have an initial processing capacity of 400,000 bpd, to be increased to 800,000 bpd by 2020. Rongsheng is understandably one of the companies that Aramco is talking to about future oil supplies.
Hengli Group, another potential partner for the Saudi state oil giant, is also building a refinery with a capacity of 400,000 bpd in Dalian, northern China.
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All major commodity traders and oil producers are watching these new players closely, just like they used to watch the teapots when they began to emerge onto the hot Chinese oil scene. The new petrochemical producers may even get to have a more dramatic effect on oil prices than teapots simply because of their access to deeper-water ports, one analyst told Bloomberg.
“The market is closely watching Rongsheng and Hengli as they’re able to accommodate larger vessels, which means it could be more viable to supply long-haul crudes in addition to regional barrels,” said Energy Aspects analyst Nevyn Nah.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.