Through Aramco, Peak China courts Peak Oil

Exchanges between China and Arab states stretch back centuries along the ancient Silk Road. More recently, Saudi Aramco 2222 is doubling down in the People’s Republic, making energy investments in the world’s second largest economy. The two sides can help each other quite a lot.

Aramco is shoring up ties with an important, long-term energy customer at a critical time; Saudi was overtaken by Russia last year as China’s top oil supplier. Oil producers are becoming more dependent on Asian demand too.

The company is in talks to buy a 10% stake in $15 billion Hengli Petrochemical 600346. Any deal would build on its strategy of investing overseas to capture a higher part of the energy value chain. A similar attempt by the Gulf company to acquire a slice of the oil business of India’s Reliance Industries RELIANCE1! fell apart in 2021.

The Saudis are paying up for the opportunity. In July, Aramco bought a 10% stake in another Chinese petrochemical firm, Rongsheng 002493, for 24.6 billion yuan ($3.4 billion), sealing the deal with an 88% premium over the Shenzhen-listed firm’s undisturbed market value. Aramco has signed preliminary agreements to invest regional refiners too. It also wants to collaborate with China on emissions reduction technologies as well as venture capital investment.

For Beijing, the rewards appear fewer but meaningful. Officials can tout the deals to show that its economy is still an attractive destination for foreign investment at a time other inflows are drying up. Overseas companies pumped 1.13 trillion yuan ($155.9 billion) into China in 2023, according to the Ministry of Commerce, a drop of 8% year-on-year and the first decline since 2012.

Aramco is climbing up the list of China’s biggest inbound investors; its chemical subsidiary SABIC 2010 promises to invest more than $20 billion in three crude-to-chemical projects in the country, group CEO Amin Nasser said in March at the Invest in China summit in Beijing, albeit without specifying the period of the outlay.

Investment from Gulf countries at decent prices will soften fears that China’s economic growth has peaked.

CONTEXT NEWS

Saudi Aramco said on April 22 it is in talks to buy a 10% stake in China’s Hengli Petrochemical.

The oil producer in July completed the purchase of 10% of Chinese petrochemical firm Rongsheng for $3.4 billion.

Aramco and its chemical subsidiary SABIC have struck deals in 2023 for more than $20 billion in liquid-to-chemical projects in China, Aramco CEO Amin H. Nasser said in March at the Invest in China summit held in Beijing.