On April 22, Saudi Aramco, the world's largest oil producer, invested more than 10 billion yuan in Chinese company Hengli Petrochemical.
In the past year, Saudi Aramco has invested 200 billion yuan in China.
Why do Middle Eastern tycoons frequently invest in China?
Saudi Aramco, whose full name is Saudi Arabian National Oil Company.
Its predecessor was Aramco, an American company founded in 1933 and owned by four oil majors.
Beginning in 1972, the Saudi government bought Aramco's stake in Aramco, and in 1988 it was nationalized.
Backed by Saudi Arabia, an oil bonanza, Saudi Aramco has become the world's largest oil producer.
Saudi Aramco's oil field facilities
This is the real Middle Eastern tyrant.
According to the data, Saudi Aramco has proven oil reserves of 261.5 billion barrels, five times the proven reserves of the world's five largest oil companies combined.
In 2023, Saudi Aramco produced 10.7 million b/d of oil.
You know, the world's oil production is only 100 million barrels per day.
Saudi Aramco alone accounts for one-tenth of global production.
What is even more enviable is that Saudi Aramco's crude oil is of high quality and extremely low cost to extract.
In 2021, for example, Saudi Aramco's upstream unit operating cost was only US$3, compared to PetroChina's unit oil and gas operating cost of US$12.3 and CNOOC Limited's US$7.83 that year.
With high yields, low costs, and no worries about sales, Saudi Aramco is simply a super money printing machine.
According to the financial report, Saudi Aramco's total revenue in 2023 will be 440.88 billion US dollars (about 3.19 trillion yuan), and the annual net profit will be 121.3 billion US dollars (about 878.8 billion yuan), earning an average of 2.4 billion yuan per day.
2023 is not yet the most profitable year due to the decline in crude oil prices and sales volumes.
In 2022, Saudi Aramco earned US$161.1 billion (about 1,167.3 billion yuan).
The earning power is equivalent to nearly 8 PetroChina.
In 2019, Saudi Aramco took a 1%-2% stake and listed on the Saudi Stock Exchange.
The market value was close to $1.9 trillion on the first day, making it the world's largest listed company by market capitalization at that time.
Saudi Aramco goes public
As a state-owned company, Aramco transfers between 50 and 60 percent of its revenues to the Saudi government in the form of royalties, corporate income tax and cash dividends.
Even so, Aramco's free cash flow is still as high as US$101.2 billion (about 733.2 billion yuan).
With so much money, you have to find a way to spend it.
Every year, Saudi Aramco invests heavily around the world.
In 2024, Aramco's capital investment is expected to be between $48 billion and $58 billion.
In addition, Aramco has established a venture capital arm with a total size of $7.5 billion.
The buy, buy, buy mode is officially opened.
This time, Saudi Aramco has invested more than 10 billion yuan in China.
According to the Memorandum of Understanding signed between Saudi Aramco and Hengli Group, Saudi Aramco or its affiliates intend to acquire 10% plus one share of the issued share capital of Hengli Petrochemical held by Hengli Group.
According to the current total market value of Hengli Petrochemical of 100 billion yuan, Saudi Aramco's investment is close to 11 billion yuan.
The Bureau notes that this is not the first time Saudi Aramco has invested in China.
On March 26 last year, Saudi Aramco spent US$12.2 billion (about 88.3 billion yuan) to establish a joint venture called Huajin Aramco Petrochemical Co., Ltd. with NORINCO Group and Panjin Xincheng Industry Group, planning to build a large-scale integrated refining and chemical complex in Panjin, Liaoning Province.
On the same day, Saudi Aramco signed a Memorandum of Understanding (MoU) with the People's Government of Guangdong Province.
According to the information disclosed later, Saudi Aramco plans to build a one-step production line of 32 million tons/year of crude oil in Maoming, Guangdong Province in two phases, with a total investment of 80 billion yuan in the first phase.
On March 27 last year, Saudi Aramco made another move, spending US$3.6 billion (about 26 billion yuan) to acquire a 10% stake in China's Rongsheng Petrochemical.
Rongsheng Petrochemical and Saudi Aramco signed a comprehensive and deepened strategic cooperation agreement Image source: Rongsheng Petrochemical
On September 27 last year, Saudi Aramco announced that it had signed a cooperation framework agreement with Oriental Shenghong to acquire a 10% strategic stake in Jiangsu Shenghong Petrochemical Group Co., Ltd., a wholly-owned subsidiary of Oriental Shenghong.
The parties did not disclose the exact amount of the acquisition, which is expected to be in the billions of yuan.
Saudi Aramco and Oriental Shenghong signed a cooperation framework agreement
On October 11 last year, Saudi Aramco announced that it had signed a memorandum of understanding with Nanshan Group Co., Ltd., Shandong Energy Group Co., Ltd. and Shandong Yulong Petrochemical Co., Ltd. to advance discussions regarding Saudi Aramco's possible acquisition of a 10% strategic stake in Yulong Petrochemical.
The parties did not disclose the amount of the proposed transaction.
Since March last year, Saudi Aramco has made six investments in China, with a total estimated amount of more than 200 billion yuan.
In just 1 year, it's a big deal.
Why does Saudi Aramco continue to increase its investment in the Chinese market?
First, we are optimistic about the Chinese market.
China's crude oil imports reached 563,993,800 tons in 2023, an increase of 11.0% over the previous year, continuing to rank first in the world, according to customs data.
Although China has formulated a carbon peak and carbon neutrality strategy, oil will still be an important energy source for a long time to come.
It's also important to note that other everyday products such as clothing, tires, detergents, fertilizers, etc., are derived from petroleum.
Modern people's lives are inseparable from oil, and China, as a global manufacturing plant, is also inseparable from oil.
Petrochemical industry chain Source: Wind, China Merchants Securities
Saudi Aramco's steady oil consumption in China is a source of deep attraction.
Second, consolidate the Chinese market.
Saudi Arabia has long been China's largest source of oil.
However, in 2023, this position will be taken by Russia.
Data shows that in 2023, China imported 107.02 million tons of oil from Russia, far exceeding Saudi Arabia's 85.95 million tons.
Last year, China imported 87.48 million tonnes of oil from Saudi Arabia and 84.26 million tonnes from Russia.
China's oil imports from Russia and Saudi Arabia in 2023 and 2022 (in 10,000 tons)
In contrast, Saudi Arabia's oil exports to China have not only not increased, but have declined.
What makes Saudi Aramco even more jealous is that they have not eaten any of the more than 20 million tons of oil that China imports from Russia.
In the face of Russian competition, Saudi Aramco's strategy is to invest real money in China, deeply bind and consolidate the market.
The Bureau noted that Saudi Aramco's investments in China are from energy and chemical giants that have established previous partnerships.
For example, before Saudi Aramco acquired a 10% stake in Rongsheng Petrochemical, it was already a crude oil supplier to Zhejiang Petrochemical, a subsidiary of Rongsheng Petrochemical.
The agreement stipulates that Saudi Aramco will supply 480,000 b/d of crude oil to Zhejiang Petrochemical for a period of 20 years.
Another example is the cooperation between Saudi Aramco and Hengli Group, which is also to supply crude oil and raw materials to Hengli Petrochemical, a subsidiary of Hengli Group.
The benefit of this is that Aramco has both made a financial investment and strengthened its business relationships.
Stabilizing China's corporate customers will also stabilize the Chinese market.
Killing two birds with one stone, the Middle East tyrants have played well in their calculations.
Oil is a pillar industry in Saudi Arabia, contributing nearly 70% of the country's fiscal revenue.
The high dependence on oil also makes Saudi Arabia have a single industrial structure, which is not only vulnerable to fluctuations in international oil prices, but also may fall into the curse of resources.
Oil revenues as a share of Saudi Arabia's fiscal revenues Source: CEIC, Haitong Securities Research Institute
To this end, in 2016, Saudi Arabia released Vision 2030, which aims to reduce dependence on oil and promote comprehensive economic, social and cultural modernization.
As one of the pillars of the economy, it is only natural that Saudi Aramco will also diversify its business, with the core of developing "non-oil" businesses.
Over the next three years, Saudi Aramco's capital investment will account for 60% of its capital investment, including natural gas, 30% downstream, and 10% from new energy.
Increasing the Chinese market is an important step in Saudi Aramco's transformation.
In addition to investing in Chinese energy and chemical companies, Aramco also invests in new energy and new materials.
Saudi Aramco has partnered with Suzhou-based Synopsys Gas Technologies to build a pilot plant in China to convert ammonia to hydrogen.
Saudi Aramco has also partnered with the China Academy of Building Materials Research to establish an innovation center for non-metallic materials in Beijing.
China's strong industrial base and large market provide tremendous opportunities for Saudi Aramco's transformation.
For China, Saudi Aramco's increased presence in the Chinese market not only brings capital, but also strengthens the security of China's oil supply chain.
The Resolution Bureau noted that at the time of Saudi Aramco's investment in China, China was also increasing its exposure to the Saudi market.
In 2022, China's investment in Saudi Arabia was only $1.5 billion, and in 2023, it soared to $16.8 billion.
China is not only Saudi Arabia's largest trading partner, but also the country's most active investor.
Part of the branch tunnel project of Saudi Arabia's new future city contracted by China Railway Construction was completed and handed over
At present, there are more than 160 large-scale Chinese-funded enterprises in Saudi Arabia, covering many fields such as housing construction, ports, photovoltaics, and automobiles.
In the field of infrastructure, China State Construction and China Railway Construction participated in the construction of a new future city project covering an area of 26,500 square kilometers.
In the field of construction machinery, Zoomlion's construction lifting machinery has become the brand with the highest market share in Saudi Arabia.
In the photovoltaic field, Chinese photovoltaic products such as LONGi Green Energy and Jinko Power sell well in Saudi Arabia.
In the field of new energy vehicles, BYD is one of the largest suppliers of electric buses in Saudi Arabia.
……
One is a big industrial manufacturing country, and the other is a big oil producing country.
China and Saudi Arabia complement each other's advantages and will have greater room for cooperation in the future.