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New Private Chinese Refinery In Talks For Long-Term Saudi Oil Supplies

oil tanking storage

Hengli Petrochemical, a unit of private Chinese chemical giant Hengli Group, is in talks with Saudi Aramco for long-term crude oil supplies for its new 400,000-bpd refinery, while it is getting ready to receive a first Saudi spot cargo by July for trial runs, Reuters reported on Wednesday, citing a source with knowledge of the matter.

Hengli expects to begin in October this year trial runs of the new refinery, which is configured to process Saudi oil grades. The first cargo of 2 million barrels of Saudi Arab Medium will be loaded in June and imported by state-run oil firm Sinochem Corp, Reuters’ source said.

In January this year, Hengli Petrochemical and a subsidiary of Sinochem Group signed a cooperation agreement for the production, supply, and marketing of oil products.

Hengli’s new refinery will be a major importer of Saudi crude, and if it manages to secure a long-term deal with Aramco, Saudi Arabia will have a new and large customer of its oil in China, where Russia has been the top oil supplier ahead of the Saudis for more than a year now.

Recently, some large Chinese buyers are said to have cut their imports of Saudi crude oil, because Riyadh has raised the official selling prices to Asia to levels deemed “unjustified” by some Chinese customers.

Related: Turkmenistan’s Natural Gas Dilemma

Last month, Hengli obtained state approval to import 400,000 bpd of crude oil—the largest quota ever handed to a private Chinese refiner. The company, however, is still waiting for the Chinese Ministry of Commerce to say how much of this quota can be used in 2018.

In the last quarter of this year, China will be adding two more refineries apart from Hengli’s. Together, the new refineries will boost the Chinese refining capacity by almost 10 percent, according to Reuters.

Zhejiang Ronsheng Group, a private chemicals company, is expected to start up a new 400,000-bpd refinery in the eastern city of Zhoushan in Q4, while CNPC will expand the capacity of its Huabei refinery by 100,000 bpd.

By Tsvetana Paraskova for Oilprice.com

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