Every year, state-owned giant China National Oil Corp. publishes an estimate of when the country’s oil demand might peak. Over the last few years, the date hasn’t changed much — give or take, around 2030 — but the apex just keeps moving higher.
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The Saudis Push Peak Oil Even Higher in China
For all the jibber-jabber about slowing Chinese demand — whether due to climate change policies or restrained economic growth — the Middle Kingdom is gulping more and more crude. And the trend is set to continue, at least for a few more years, thanks to new deals with Saudi Arabia.
The Saudis have attempted to crack open China’s oil-refining industry for decades, trying to buy stakes as a beachhead to supply more oil into the People’s Republic. It’s a well-worn strategy: The Saudis did the same in other big petroleum markets, investing in refiners from Japan to the US to South Korea. In exchange for their equity, the Saudis locked in sales of their oil. It’s a money-for-crude investment that guarantees the Saudis steady demand for their oil.
In China, however, the Saudi strategy didn’t work as well. Riyadh had little to show for several decades of effort. Until now, it had just a 25% stake in a 300,000-barrel-a-day refinery in Fuijan provice — a project dating back to the the mid-1990s when Beijing opened up its oil-refining sector to attract capital and know-how.
Riyadh persevered, but faced lots of obstacles. Beijing wasn’t really keen to let foreigners run its oil sector. Furthermore, the economics didn’t work: The Chinese government often set domestic fuel prices well below international levels, forcing the refiners to subsidize the difference. Since then, both problems have eased. Beijing is again attracting capital to its petrochemical sector, and domestic prices for gasoline and diesel are close to international levels. Having stuck with it for over 30 years, the Saudi bet on China has finally paid off.
On Sunday, state-owned Saudi Aramco announced that the long-delayed construction of a new 300,000 barrel-a-day refinery in China would go ahead in the second quarter after securing all administrative approvals. Aramco owns 30% of the project, and said it would supply 210,000 barrels a day of crude to the new complex. On Monday, Aramco said it would buy a 10% stake, worth $3.6 billion, in a Rongsheng Petrochemical Co. Ltd., which co-owns the largest refinery in China, one with a capacity of 800,000 barrels a day. As part of the deal, Aramco said it would supply 480,000 barrels a day to the refinery.
In two days, the Saudis have secured an outlet for nearly 700,000 barrels a day of their production – that’s more than daily consumption of a medium-sized European economy like the Netherlands.
Is it worth the money? For Saudi Arabia, investing in a foreign refinery is often less about profits from processing crude and more about having secured demand. The Saudis and other oil-rich countries are fighting to lock in long-term customers. Nowhere else does the size of the contracts — and, equally important, their longevity — match what’s possible in China. Over time, India, where Aramco is also exploring refinery ventures, may approach China. But it’s not there yet. New Delhi consumes 5.5 million barrels a day of crude, compared to Beijing’s 16 million. Even if Chinese growth slows, it would take India decades to catch up
These decades-long supply deals with Chinese refiners will also keep Russia and Iran, which are selling discounted barrels, from eating into the Saudi Arabia’s market share
Having ditched its Covid Zero policy, China’s oil demand growth is accelerating. On Monday, CNPC said that consumption is likely to average 756 million tons in 2023. The prophecy of a 2030 peak of 780 million hasn’t changed, which doesn’t give the country much room to maneuver. Very likely, CNPC will do what it has done in the past: Move the goalposts. Peak demand will still arrive in 2030, but just at a level of many more million tons. That’s music to Saudi ears.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
4 Comments on "The Saudis Push Peak Oil Even Higher in China"
makati1 on Sat, 1st Apr 2023 4:56 pm
The West is committing suicide. The East is the future. I’m glad I live in the East and no longer in the West.
Theedrich on Mon, 3rd Apr 2023 5:18 pm
Fact: The U.S. gov is a genosuicidal kleptocracy. No more need be said.
John the realist on Wed, 5th Apr 2023 11:41 am
China is not a threat except to the weak asian nations surrounding it. malaysia just agreed to come under Her umbrella, Indonesia will go where the money lies too. The phillipiens is a whore of the US, always has been since America occupied it back in the 19th century so it will have have to be absorbed by force. That is why the Chinese are building bases on atolls around it.
In the BRICS new world order there will be ‘them’ and what’s left of the degenerate West, Britian and the US will become like Greece and Portugal, old impoverished empires.
Theedrich on Sat, 8th Apr 2023 12:50 am
The Ukroids are becoming multiply entangled in the Russian web. There is no way they can be rescued. Perhaps 250,000 – 300,000 Ukrainian soldiers are dead, never mind the wounded. Zelenskiy”s Grand Offensive is being increasingly postponed and, indeed, escaping his grasp altogether.
Forget “negotiations” between Zelsky and Moscow. There is no possibility about swindling anything from Russland, and in the case of such an attempt Zelsky himself would likely meet the same fate that he has meted out to so many Russophiles in Ukraine: death. The Ukrainian honcho seems not to realize it, but he is gradually being enclosed in the iron grip of a slowly closing coffin from which there is no escape.
In the case of Macron, the appropriate response is to flip him off as an annoying horsefly. Neither he nor any of the other servile American stooges in the EU have anything serious to offer. The only realistic course is the progressive obliteration of Ukraine from the face of the earth.
𝖁𝖊𝖗𝖎𝖙𝖆𝖘 𝖑𝖎𝖇𝖊𝖗𝖆𝖇𝖎𝖙 𝖛𝖔𝖘.