Saudi Arabia was re-affirming diplomatic relations with key allies in East Asia when King Salman bin Abdulaziz Al Saud embarked on a tour of the region in early 2016, but the itinerary also included talks to cement existing commercial ties while paving the way for new investments and joint ventures (JVs). The Kingdom was also staking out territory in some of its most valuable export markets: data from Saudi Aramco, the state-owned oil giant, shows that 66.7% of its crude oil exports and 32.5% of refined products were shipped to facilities in Asia in 2016, compared to 15.8% of crude going to the second-largest export destination.

Existing Regional Ties

A number of JVs over the years have resulted from Saudi Arabia’s aim to establish stronger links with its Asian export markets. Some of the companies developed are based in the importing countries, while others are located in Saudi Arabia. For example, China’s Sinopec and Saudi Aramco collaborated to build Yanbu Aramco Sinopec Refining at Yanbu on the Red Sea, with Saudi Aramco owning a 62.5% share in the 400,000-barrel-per-day (bpd) refinery. In China, Saudi Aramco has a 25% stake in the Fujian Refining and Petrochemical Company, with ExxonMobil holding another 25% and the Fujian Petrochemical Company maintaining 50% of the equity.

Japan’s Sumitomo Chemical Corporation and Saudi Aramco have developed the Petro Rabigh petrochemicals and refining complex in Saudi Arabia, including a 400,000-bpd refinery. Saudi Aramco has a 37.5% stake in Petro Rabigh. Meanwhile, in Japan Saudi Aramco has a 14.96% share in Showa Shell Japan, where three refineries process 445,000 bpd. Saudi Aramco also owns 63.4% of the equity in S-Oil of South Korea, which has a refining capacity of 669,000 bpd.

These partnerships allow industry players to share knowledge and expertise, whether it be technical or related to local market conditions. On a national level, the agreements also help underpin trading relationships between importers and exporters of oil. For Saudi Arabia, it makes sense to have a firm footing in the Asian countries that account for the lion’s share of its current export revenues, as well as those that hold potential for growth.


King Salman’s Asia tour began with a visit to Malaysia. In February 2016 it was announced that Saudi Aramco would invest $7bn for a 50% stake in the $27bn Refinery and Petrochemical Integrated Development (RAPID) facility being built in Johor province by Petronas, Malaysia’s state-owned oil company. Sitting across the water from Singapore, the RAPID complex is due to open in 2019 and will process 300,000 bpd, with half of the crude coming from Saudi Arabia. Amin Nasser, CEO of Saudi Aramco, highlighted the significance of the deal when speaking to the media. “Together with Malaysia, the South-east Asia region offers tremendous growth opportunities, and today’s agreement further strengthens Saudi Aramco’s position as the leading supplier of petroleum feedstock to Malaysia and South-east Asia. With RAPID’s strategic location in a prolific hub, it would also serve to enhance energy security in the Asia-Pacific region,” he said.


In Indonesia King Salman’s visit was to re-affirm a heads of agreement signing in December 2015 between Saudi Aramco and state-owned Pertamina for works at the Cilacap refinery in central Java. Built in 1974 with a capacity of 348,000 bpd, Cilacap will be expanded to process 370,000 bpd, and will be upgraded to enable it to handle more sour heavy crudes and meet higher product specifications. In return for Saudi Aramco’s $5.5bn investment, the contract includes a long-term agreement for the refinery to utilise Saudi crude oil supplies. As part of the agreement with Pertamina, Saudi Aramco was also selected as a partner for the Balogan refinery in Java and the Dumai refinery in Sumatra.


At the end of King Salman’s 2016 Asian tour, Saudi businesses signed deals and agreements in China totalling a value upwards of $65bn. Saudi Aramco and China North Industries Group Corporation (Norinco) signed a memorandum of understanding for a $10bn plan to refine oil and produce petrochemicals in China. The plans include an integrated complex that hosts a 300,000-bpd refinery and an ethylene complex with an annual capacity of 1m tonnes. After King Salman’s visit to China, Khalid Al Falih, Saudi Arabia’s minister of energy, industry and mineral resources, signed a framework agreement with Norinco. In addition, Abdulaziz Al Judaimi, Saudi Aramco’s senior vice-president for downstream activities, attended a ground-breaking event at the proposed site in Panjin, located in China’s north-east Liaoning province.

For the Chinese company, the partnership will support the safe development of the domestic petrochemicals industry and help the country implement its “One Belt One Road” trade and development initiative. For Saudi Aramco, the deal presents an opportunity to increase its footprint in Mainland China, continue its downstream diversification into petrochemicals and strengthen its portfolio of long-term crude oil supply contracts. In the petrochemicals space, Saudi Basic Industries Corporation (SABIC), which already has a JV with Sinopec for a chemicals complex in Tianjin, signed a further agreement with Sinopec to examine the possibilities of collaborating on the construction of petrochemicals plants in both Saudi Arabia and China.

Eastern Promise

Just as foreign companies investing in Saudi Arabia value their Saudi JV partners’ understanding of the local market, both Saudi Aramco and SABIC must rely on their Chinese partners for insights into the complexities of the refining and petrochemicals markets there. According to an analysis by S&P Global Platts, a provider of energy and commodities data, China’s refining sector includes a number of independent operators that have a challenging relationship with state regulators.

In early 2015, 11 independent refineries were allowed to collectively import 49.19m tonnes of crude oil and subsequently permitted to export their products. However, in 2016 import quotas for just 24.58m tonnes were awarded to eight independent refineries. The National Development and Reform Commission (NDRC) worried that if imports grew too rapidly there may be a glut in the Chinese refined products market. While these independent refiners may only account for 12% of imports, with bigger state refiners such as PetroChina and Sinopec exempt from import quotas, their existence and dealings with the NDRC illustrate some of the intricacies of the Chinese market.

In April 2017 China’s crude imports rose to an all-time high of 9.2m bpd, surpassing the US as the world’s top buyer of oil. Energy analysts suggested the surge was caused by independent refiners rushing to purchase oil after being given their quotas in mid-January. This line of thought was also applied in 2016, when the 900,000-bpd increase in China’s imports was attributed to demand from the same independent refiners.