Saudi Aramco Agrees to Supply Oil to Chinese Refinery

State-owned Saudi Arabian Oil Co. Sunday said its unit Aramco Overseas Co., signed a memorandum of understanding with PetroChina Co. Ltd., a subsidiary of China National Petroleum Corp. to supply crude to a planned grassroots refinery in southwest China.

Aramco, the world’s biggest oil company, will supply as much as 200,000 barrels a day of Arabian crude oil via long-term contract to PetroChina’s 10-million-metric-ton-a-year refinery in the Chinese province of Yunnan under the agreement, Aramco said in a statement posted on its website.

Saudi Arabia already exports about 1.1 million barrels a day of oil to China, while the Middle East as a whole provides about 2.9 million barrels a day of oil to the country.

The refinery’s product portfolio will include ultra low-sulfur gasoline and diesel that meet current and future Chinese specifications.

“This agreement is a significant step forward in our expanding relationship with CNPC and in our global downstream strategy,” Aramco Chief Executive Khalid Al Falih said in the statement. “We don’t consider ourselves simply sellers of oil to China, but rather strategic partners.”

China, the world’s second-largest economy, surpassed the U.S. as the biggest importer of oil from Saudi Arabia in 2009, and the kingdom’s crude is an increasingly important factor in powering the nation’s growth. Energy demand is rising rapidly in China, driven by rapid industrialization and a growing middle class.

Despite China’s best efforts to diversify its oil imports, most of the imported crude it needs to fuel growth comes from Saudi Arabia, according to the U.S. Energy Information Administration.

Last week, Aramco signed a memorandum of understanding with China Petrochemical Corp., or Sinopec Group, to develop the 400,000-barrel-a-day Yanbu refinery on Saudi Arabia’s Red Sea coast.

Sinopec Group will initially hold a 37.5% stake and Aramco will have a 62.5% stake in the project should they proceed to formally participate in a joint venture, which would start operation in 2014, Aramco said.

WSJ