Royal Dutch Shell Plc .com: Sinopec, Aramco Discuss Oil Deal

From THE WALL STREET JOURNAL
By RENYA PENG
June 23, 2006

BEIJING — Saudi Arabian Oil Co. is in talks with China Petrochemical Corp., or Sinopec, to gain access to China’s wholesale oil-products market, which the government will open to foreign investment at the end of this year, a Sinopec official said.

In exchange, Sinopec, China’s largest refiner and retailer by volume, is seeking to build a refinery in Saudi Arabia with an annual processing capacity of as much as 12 million metric tons, the official said in an interview.

The news comes after the Chinese government confirmed Tuesday it will work with Saudi Arabia on developing China’s strategic oil reserves as part of efforts to deepen energy ties between the two countries.

If the talks are successful, Saudi Aramco would be the latest large foreign oil company to take a slice of China’s huge and growing fuel-distribution market, now about 90% dominated by state-owned Sinopec and China National Petroleum Corp.

Global oil companies like Royal Dutch Shell PLC, U.K.-based BP PLC and France’s Total SA are preparing to enter China’s wholesale market after setting up joint refineries and retail ventures with China’s oil companies. They are also penetrating the country’s retail gasoline market by building as many as 2,000 service stations over the next few years.

Aramco has been actively expanding its business in China by investing to expand a refinery in southern Fujian province with Sinopec and Exxon Mobil Corp. at a total cost of $3.5 billion. It is also in talks to acquire a stake in a refinery in eastern Shandong province.

Aramco and Sinopec recently agreed to establish a marketing joint venture in Fujian this year, which may oversee the distribution business.

Sinopec is also highly interested in the talks, as “it’s an opportunity to strengthen relations with Saudi Arabia and export our refinery-engineering technology to the Middle East,” the Sinopec official said. He added that the refined products may be partly sold to China.

“We may bid for more refinery projects there,” he said.

The talks may produce some results around year’s end, when the Chinese government will unveil the access criteria for the domestic wholesale oil-products market.

Saudi Aramco’s Beijing office declined to comment on the issue.

China is the world’s third-largest oil-products consumer, with consumption expected to rise to about 177.24 million tons this year, up about nine million tons from last year.

China is set to lift restrictions on wholesale fuel distribution by foreign companies Dec. 11 as part of its World Trade Organization commitments.

Write to Renya Peng at [email protected]

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