Saudi Aramco looks to become China’s biggest crude supplier

Saudi Aramco’s crude supply deals with China come as Beijing looks to reduce its reliance on US crude imports amid a trade war with Washington. Above, Aramco’s Abqaiq oil facility. (Reuters)
Updated 28 November 2018
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Saudi Aramco looks to become China’s biggest crude supplier

  • New supply contracts make it very likely that Saudi Aramco next year will become China’s largest supplier
  • Russia currently accounts for the lion’s share of China’s oil imports, supplying some $23.7 billion worth of crude last year

LONDON: Saudi Aramco is moving closer to becoming China’s largest supplier after striking five new crude supply deals with Beijing.
It will help to take the total volume to 1.67 million barrels per day (bpd).
“The new supply contracts make it very likely that Saudi Aramco next year will become China’s largest supplier, a position it also held from 2006 until 2016,” the Saudi oil company said in a statement.
Russia currently accounts for the lion’s share of China’s oil imports, supplying some $23.7 billion worth of crude last year, or 14.6 percent of its total oil imports.
Top Aramco officials this month attended the first China International Import Expo in Shanghai.
The delegation included Ahmed Al-Khunaini, manager of Saudi Aramco’s Crude Oil Sales and Marketing Department, and Anwar Al-Hejazi, Aramco Asia president.
Aramco earlier agreed a crude oil supply agreement with Zhejiang Petroleum and Chemical Co. (ZPC) on the sidelines of the Asia Pacific Petroleum Conference (APPEC) in Singapore.
“Large, integrated crude-to-chemical projects like ZPC and Hengli are the future of China’s downstream industry and I am excited Saudi Aramco will be part of their success story,” said Saudi Aramco Senior Vice President Abdulaziz Al-Judaimi.
The new supply agreements are the result of Aramco’s marketing efforts that focus on customer diversification, strategic relationships, and tapping regional demand previously not supplied by Saudi Aramco, the national oil company said.
They are an important part of diversifying Saudi Aramco’s customer base and capturing a large share of China’s future incremental oil demand, which will increasingly come from private refiners.
Annual economic growth of more than 6 percent is supporting demand for oil imports in China as the country adds more refining and petrochemical capacity.
Beijing is also seeking to reduce its reliance on US crude imports amid a trade war with Washington, analysts say.
“Chinese buyers, anticipating that crude and LNG could go on the list if tensions escalate further, are looking to alternative sources,” Richard Mallinson, co-founder of London consultancy Energy Aspects, told Arab News in August.
OPEC already provides 56 percent of China’s oil imports, according to the International Energy Agency.
China’s crude imports grew year on year during the third quarter of 2018 according to data from Bloomberg NEF, despite a fall in imports coming from Iran.
China imported nearly 10 million barrels of oil per day last month.


Asia’s refining profits slump as Mideast exports surge

Updated 23 February 2019
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Asia’s refining profits slump as Mideast exports surge

  • Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India
  • However, overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs

SINGAPORE: Asia’s biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.
Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India.
Yet overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs.
Compounding the supply overhang, fuel exports from the Middle East, which BP data shows added more than 1 million barrels per day (bpd) of refining capacity from 2013 to 2017, have doubled since 2014 to around 55 million tons, according to Refinitiv.
Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, suggesting a slowdown in gasoline demand.
For diesel, China National Petroleum Corp. in January said that it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
The surge in fuel exports combined with a 25 percent jump in crude oil prices so far this year has collapsed Singapore refinery margins, the Asian benchmark, from more than $11 per barrel in mid-2017 to just over $2.
Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.
The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Asia’s top oil refiner China Petroleum & Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year. Jeff Brown, president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.
“The pressure on refinery margins is a case of death by a thousand cuts ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.
The profit slump follows a surge in fuel exports from China, India, Japan, South Korea and Taiwan. Refinitiv shipping data shows fuel exports from those countries have risen threefold since 2014, to a record of around 15 million tons in January.
The biggest jump in exports has come from China, where refiners are selling off record amounts of excess fuel into Asia.
“There is a risk for Asian market turmoil if (China’s fuel) export capacity remains at the current level or grows further,” said Noriaki Sakai, chief executive officer at Idemitsu Kosan during a news conference last week.
But Japanese and South Korean fuel exports have also risen as demand at home falls amid mature industry and a shrinking population. Japan’s 2019 oil demand will drop by 0.1 percent from 2018, while South Korea’s will remain flat, according to forecasts from Energy Aspects.
In Japan, oil imports have been falling steadily for years, yet its refiners produce more fuel than its industry can absorb. The situation is similar in South Korea, the world’s fifth-biggest refiner by capacity, according to data from BP.
Cho Sang-bum, an official at the Korea Petroleum Association, which represents South Korean refiners, said the surging exports had “triggered a gasoline glut.”
That glut caused negative gasoline margins in January.