Other BriefingsChina’s Rongsheng Petrochemical and Saudi Aramco Forge Closer Energy Ties with New MoU
Saudi Arabia and China are strengthening their energy alliance with a pact between Saudi Aramco and Rongsheng Petrochemical, which covers strategic investments, refinery acquisitions, and initiatives in clean energy.
By Giulia Interesse
On January 2, 2024, Saudi Aramco and Rongsheng Petrochemical signed a memorandum of understanding (MoU) in Dhahran, Saudi Arabia. This agreement outlines their mutual intent to acquire ownership stakes in each other’s subsidiary entities.
The MOU’s key highlights involve discussions between Saudi Aramco and Rongsheng Petrochemical regarding a potential acquisition of a 50 percent stake in Saudi Aramco Jubail Refinery Company (SASREF), the refining unit of the Saudi company. Simultaneously, Rongsheng is considering selling up to 50 percent of its subsidiary, Ningbo Zhongjin Petrochemical, to Aramco.
Rongsheng Petrochemical is known for operating the world’s largest single refinery and boasting a diverse portfolio in Asia. With the MoU in effect, the company is strategically focusing on upgrading and expanding existing endeavors, such as Ningbo Zhongjin Petrochemical and Rongsheng New Materials (Zhoushan).
Simultaneously, this collaboration brings Saudi Aramco into the fold of domestic projects in China, creating a strategic layout for Rongsheng Petrochemical to expedite global coordinated development in the petrochemical industry.
Background and implications
Saudi Aramco initially unveiled plans to acquire a 10 percent stake in Rongsheng Petrochemical in March 2023, solidifying the investment with a 20-year crude oil supply agreement linked to Rongsheng-controlled Zhejiang Petrochemical Corp. The deal concluded in July with a valuation of US$3.4 billion.
Expanding its investment portfolio, Aramco then entered negotiations to purchase a 10 percent stake in Shandong Yulong Petrochemical Co. In Shandong province, this company is currently constructing a refinery complex with a daily processing capacity of 400,000 barrels of crude oil.
Moreover, in September, Aramco entered a preliminary deal to become a strategic investor in Jiangsu Shenghong Petrochemical, another private Chinese refiner. Operating a substantial 320,000 barrels per day refinery and petrochemical complex in Jiangsu province, Jiangsu Shenghong Petrochemical became the focus of Aramco’s strategic investment initiatives.
On the other side of the partnership, Rongsheng Petrochemical revealed its ambitious plans in a separate filing to the stock exchange. The company outlined a substantial investment of RMB 67.5 billion (US$9.46 billion) earmarked for new materials. This investment is set to take place at Rongsheng’s base in Zhoushan, located in eastern China. The focus of this venture includes the production of high-performance plastic materials such as ethylene vinyl acetate (EVA) and polyolefin elastomers, crucial components used in the manufacturing of solar panels.
Why does it matter?
The potential acquisition of a 50 percent stake in SASREF by Rongsheng Petrochemical marks a notable shift, representing the first investment by a private Chinese firm in a significant Saudi refining asset. This move is a departure from the existing landscape, where state refining giant Sinopec Corp stands as the sole Chinese company with refinery stakes in Saudi Arabia.
The two parties are also in talks to expand the Saudi refinery and upgrade its product offerings, indicating a more comprehensive collaboration that could significantly impact the dynamics of the energy and refining sector in the region.
The final investment decision remains pending, subject to the completion of due diligence processes conducted separately on Ningbo Zhongjin and SASREF by the respective buyers, Rongsheng Petrochemical stated.
Beyond oil: China’s clean energy investment in Saudi Arabia
In a strategic move towards diversification, Saudi Arabia is intensifying its relations with Chinese firms, aligning with its ambition to broaden its economic landscape beyond oil dependency. As the world tries to shift away from fossil fuels, Saudi Arabia recognizes the importance of embracing clean energy, and Chinese investments play a pivotal role in facilitating this transition.
An illustrative case of collaborative efforts in this field is provided by China’s Envision, a leading wind turbine manufacturer and fourth-largest supplier globally. In June 2023 they made a significant contribution to Saudi Arabia’s clean energy landscape by delivering 1.7GW of turbines to the world’s largest green hydrogen project in Neom, a futuristic city along the kingdom’s northwest coast. Yu Feng, Envision’s Global Vice President, emphasized Saudi Arabia’s abundant renewable power sources, envisioning wind, solar, and green hydrogen as fundamental components of the Kingdom’s energy sector, capable of supplying new energy to the global market.
Additionally, Riyadh is looking to tap into Chinese mining expertise as it accelerates efforts to extract metals crucial for the energy transition. Khalid Alsharief, Vice President for Strategy and Business Development at the state-owned miner Ma’aden, recently highlighted the Kingdom’s interest in leveraging Chinese proficiency in mining to unearth essential resources within the Arabian Peninsula.
Deepening ties
This deepening collaboration extends beyond economic benefits, influencing geopolitical dynamics. Saudi Arabia, a key player in the Middle East, is opening its doors to increased Chinese influence in the region. In return, China secures a strengthened foothold in a region vital for its energy security. The growing partnership aligns with Saudi Arabia’s vision for a post-oil future, leveraging China’s investment not only for economic development but also for geopolitical leverage.
The Saudi government’s commitment to providing policy certainty is seen as an attractive proposition for Chinese investors, with Saudi Arabia emerging as a stable and promising partner. However, according to recent analyses, potential for increased Chinese investment in the Kingdom lies in creating more favorable conditions, such as allowing companies to bring in more of their personnel.
As Saudi Arabia and China deepen their ties, the collaboration not only propels the Kingdom towards a diversified and sustainable economy but also positions China as a key partner in Saudi Arabia’s transformative journey beyond.
