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Saudis buy into Chinese mega oil refinery to lock in sales

Aramco will acquire a share of a 400,000 barrel-a-day plant at Zhoushan island in China's Zhejiang province

Beijing

SAUDI Arabia will buy a stake in an upcoming Chinese mega refinery, its latest investment in the world's biggest oil market as it pursues a strategy of securing avenues for oil sales.

Saudi Arabian Oil Co, known as Aramco, will acquire a share of a 400,000 barrel-a-day plant at Zhoushan island in China's Zhejiang province, Abdulaziz M Al-Judaimi, the company's senior vice-president of downstream operations, said at the International Petroleum and Natural Gas Enterprises Conference on Oct 18. The world's biggest crude exporter has already signed a long-term contract to supply 120,000 barrels a day to the facility.

The stake purchase is part of a long-term Saudi strategy of investing in Asian refineries to lock in demand for its crude and secure market share in the region. Aramco is also helping to finance the US$27 billion RAPID complex in Malaysia, and last year signed a US$6 billion agreement with Indonesia's PT Pertamina for refinery projects. It also agreed to build a plant in China's Liaoning region.

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"What the Saudis are pursuing is consistent and clear - investing in client refiners and boosting its supplies," said Li Li, an analyst at industry researcher ICIS-China. The acquisition marks "a new level in the Chinese private sector and foreign investment in China's oil and petrochemical industry".

The interest is particularly high in China, which has overtaken the US as the world's biggest crude importer. Saudi Arabia, which was once the top seller to the Asian nation, is now trailing Russia and facing competition from other sources of supply, including US shale fields and fellow Opec members the United Arab Emirates, Kuwait and Angola.

Aramco's equity in the project will be 9 per cent, a share previously held by the local government of Zhejiang province, Chinese magazine Caixin reported on its website. The details on the size of the stake are still being decided, Mr Al-Judaimi told Bloomberg News on Oct 19.

Aramco is looking to invest in a total one million to 1.5 million barrels a day of Chinese refining and petrochemical capacity, Mr Al-Judaimi said on the sidelines of the conference. The deals for the projects in Liaoning and Zhejiang will be completed by the end of next year, he added.

The Zhejiang project is an example of "the new type of integrated refining and petrochemical investment needed for the future of the oil industry", he said at the conference held in the eastern Chinese island city of Zhoushan.

The Zhejiang refinery is expected to process 20 million tonnes of crude a year when its first phase is completed. The plant will start operations by the end of 2018, said Shou Bochun, the general manager of Rongsheng Petrochemical Co, the facility's operator.

The company plans to double its capacity by 2020. It's part of a wave of upcoming mega projects by private companies in China, including Hengli Group's facility in the northern city of Dalian. BLOOMBERG