China oil demand helps Saudi Arabia challenge Russia’s export crown

Reuters Singapore
Sat, 2018-12-01 00:30

SINGAPORE: Saudi Arabia is set to expand its market share in
China this year for the first time since 2012, with demand stirred
up by new Chinese refiners pushing the Kingdom back into contention
with Russia as top supplier to the world’s largest oil buyer.
Saudi Arabia, the biggest global oil exporter, has been surpassed
by Russia as top crude supplier to China in the past two years as
private “teapot” refiners and a new pipeline drove up demand
for Russian oil.
Now fresh demand from new refineries starting up in 2019 could
increase China’s Saudi oil imports by between 300,000 barrels per
day (bpd) and 700,000 bpd, nudging the OPEC kingpin back toward the
top, analysts say.
Saudi Aramco said last week it will sign five crude supply
agreements that will take its 2019 contract totals with Chinese
buyers to 1.67 million bpd.
“With the recent crude oil supply agreements and potential
increase of refinery capacity, the Saudis could overtake the
Russians and reclaim (the) crown as the biggest crude exporter to
China,” Rystad Energy analyst Paola Rodriguez-Masiu said.
Saudi Arabia has already gained ground this year. China imported
1.04 million bpd of Saudi crude in the first 10 months of 2018,
China customs data showed. This is equivalent to 11.5 percent of
total Chinese imports, up from 11 percent in 2017, Reuters
calculations showed.
Saudi Arabia’s market share in China could jump to nearly 17
percent next year, if buyers requested full contractual volumes,
analysts from Rystad Energy and Refinitiv said, while growth in
Russian supply to China could slow.
China imported 1.39 million bpd of Russian crude in January-October
this year, about 15 percent of total Chinese imports, customs data
showed. Russia had a 14 percent share at 1.2 million bpd in
“We expect Chinese imports of Russian crude to remain at a
similar rate in 2019 as a large share of these Russian barrels are
imported via pipeline,” Refinitiv analyst Mark Tay said.
The biggest boost to Saudi exports to China comes from contracts
inked with new refineries starting up this year and next, owned by
companies other than state oil giants Sinopec or PetroChina.
The contracts include 130,000 bpd to Dalian Hengli Petrochemical
and up to 170,000 bpd to Zhejiang Petrochemical Corp, each of which
has a 400,000-bpd refinery.
Saudi Aramco has also agreed to increase Sinochem Corp’s
supplies, which will be processed at its Quanzhou and Hongrun
refineries. Sinopec, PetroChina and China National Offshore Oil
Corp. have all kept their term Saudi volumes for next year
Beijing-based consultancy SIA Energy expects Saudi crude imports to
rise by 300,000 bpd in 2019, raising its market share
to 13.7 percent, but leaving it behind Russia.
“We expect lower Saudi crude demand from Hengli and Rongsheng as
it is unlikely for them to run their refineries at full rate in
2019,” analyst Seng Yick Tee said.
A source familiar with Aramco’s export plans said there is
tremendous appetite from China’s independents, and that it needed
to be more aggressive in its marketing strategy.
The state oil company did move more swiftly to seal the most recent
deals than it used to in the past, industry sources said.
Aramco’s first deal with Hengli was to supply 20 million barrels
of crude, about 55,000 bpd, in 2018, said a senior source.
“Hengli executed the 2018 deal nicely, which helped build
trust,” he said.
Hengli is designed to process 90 percent Saudi crude, a mix of Arab
Medium and Arab Heavy, while the remaining 10 percent is Brazilian
Marlim crude. Rongsheng’s plant is identical to Hengli, the
industry sources said.
The sources spoke on condition of anonymity.
Aramco is also supplying PetroChina’s refinery in China’s
southwestern Yunnan province with about 4 million barrels a month
of crude via a pipeline from Myanmar between July and November,
Eikon data showed, although sources said talks for Saudi Arabia to
acquire a stake in the refinery have stalled.
Saudi Aramco CEO Amin Nasser said on Monday the company will push
to expand its market share in China and is still looking for new
refining deals there despite OPEC’s likely limits on output next
Saudi Aramco will supply up to 70 percent of the oil required at
its 300,000-bpd joint venture refinery in Malaysia with Petronas.
Between China and Malaysia alone, Saudi Arabia will have to
increase exports to
Asia by more than 500,000 bpd next year.
This comes as OPEC is discussing production cuts of as much as
1.4 million bpd for next year to prop up oil prices.
Between balancing global supplies and increasing market in Asia,
Aramco may decide to “forgo market share in other markets like
the US, where the surge in domestic production will make it
difficult for the Saudis to retain market share anyway,”
Rystad’s Rodriguez-Masiu said.
Saudi’s oil shipments to the US have risen recently to above
1 million bpd, but US output is also increasing, said the source
familiar with Saudi Aramco’s export plans.

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Source: FS – All-News-Economy
China oil demand helps Saudi Arabia challenge Russia’s export crown