Saudi Aramco exits $10 billion Chinese refinery project

 Saudi Arabian National Oil Company (Saudi Aramco, SE:2222) said it will suspend its agreement to build a refining and petrochemical complex in China in keeping with its recent commitment to cut capital spending. The decision by Saudi Aramco suggests that the company, which has the lowest input costs among global oil producers, doesn't think the complex will generate good enough profits given the outlook for product prices.

Aramco did not immediately respond to a request for comment, one of its partners, China North Industries Group, did not immediately respond to an email seeking comment, and another partner, Panjin Xincheng Group Company, did not respond to a phone call or email outside of office hours.

The petrochemical project will continue to move forward after Saudi Aramco's withdrawal, it was learned earlier from personnel with knowledge of the situation.

In early August, Saudi Aramco held its first earnings conference since going public. The figures showed that its first-half net profit halved year-on-year, however, the company said it would continue to maintain its current dividend payout levels.

On Feb. 22, 2019, BAIC and Saudi Arabian Oil Company and Liaoning Panjin Xincheng Group Company signed a joint venture agreement in Beijing, witnessed by Han Zheng, a member of the Standing Committee of the Political Bureau of the Central Committee and Vice Premier of the State Council, and Saudi Crown Prince Mohammed bin Salman.

The three parties jointly invested in the establishment of a new company - Huajin Aramco Petrochemical Company Limited, with registered address in Panjin City, Liaoning Province. Ltd. with registered address in Panjin, Liaoning Province, with 36%, 35% and 29% shareholding respectively by BAIC, Saudi Aramco and Panjin Xincheng Group. The total investment in the project will exceed US$10 billion and it will become the largest Sino-foreign joint venture after completion and operation. Liaoning Province Governor Tang Yijun, Group Chairman Jiao Kaihe and Saudi Aramco President and CEO Amin Nasser attended the signing ceremony.

The original plan was that the joint venture, once established, would be responsible for the construction and operation of an integrated refining and chemical project located in Panjin, Liaoning Province. The project includes 15 million tons/year of oil refining, 1.5 million tons/year of ethylene and 1.3 million tons/year of paraxylene units. Trial operation is scheduled for the second half of 2023.