And the Chinese expansion continues....
Chinese-Saudi energy deal expected
By Chris Oliver, MarketWatch
Last Update: 6:34 AM ET Jan. 23, 2006
HONG KONG (MarketWatch) -- China and Saudi Arabia are expected to sign an energy-cooperation deal this week, marking a milestone in relations between the two nations as King Abdullah begins a three-day visit to Beijing.
China's Foreign Ministry said the two leaders would oversee the signing of several contracts, without specifying a date, according to a report from the Xinhua news agency.
The deal is likely to include a memorandum of understanding calling for increased bilateral cooperation and investment in oil, natural gas and minerals, according to a report in the Asian Wall Street Journal, which cited an unnamed Saudi official.
It's Abdullah's first official overseas visit since taking the throne in August. And the visit is the first by a Saudi ruler since the two countries established diplomatic relations in 1990.
Analysts said the meeting will likely address China's technical ability to handle increased imports of heavy and sour crude oil -- the two main types of petroleum that China exports from Saudi Arabia.
China's coastal refineries can only handle about 500,000 barrels of sour crude daily, not far above the 400,000 barrels of Saudi crude it now imports a day.
The deal comes as Saudi Arabia, the world's biggest oil supplier with the largest known reserves, seeks to diversify its economy and move away from too great a dependence on the United States, analysts said.
"In the coming years China will be the incremental buyer for Saudi crude along with India," said energy analyst Gordon Kwan, at Hong Kong brokerage CLSA. "So they want to make sure that Chinese refineries have the technology to process the type of crude oil that Saudi will be producing."
Abdullah's China visit is part of a four-nation Asian tour that will also include stops in India, Malaysia and Pakistan. Members of his delegation include Saudi Oil Minister Ali Naimi.
China's oil imports from Saudi Arabia have doubled in recent years from 12.5 million tons in 2002 to 22 million tons for the first 11 months of 2005. China's consumption, currently 7 million barrels per day, is growing at about 5% a year, spelling additional daily demand of 350,000 barrels.
Kwan estimates if China turned to Saudi Arabia for half its growing oil consumption, daily imports from the kingdom could double to 1 million barrels per day within two years, not far behind U.S. current daily imports of 1.2 million barrels per day.
"So even though in absolute size of purchase China is really only one-third that of the U.S., when it comes to incremental growth, China is a big player," Kwan says.
Analysts said the talks between the two leaders will also focus on terrorism and the potential for Chinese troops in Saudi Arabia.
Daniel Chan, chief investment strategist of DBS bank in Hong Kong, said in addition to crude oil, the talks will focus on boosting the import of refined oils in the form of diesels and other ready-to-use fuels.
"At this moment, I don't think there will be a specific deal," Chan said. "I think the important element is the commitment between the two governments. China has an interest in sourcing long-term oil reserves directly from the Middle East."
Chinese and Saudi oil companies have already signed several deals. China Petroleum & Chemical Corp. (HK:386: news, chart, profile) (SHI:
47.27, -2.16, -4.4%) , or Sinopec, is drilling for natural gas in Saudi Arabia.
Sinopec, China's second-biggest oil producer by volume, is also working with Saudi Aramco and Exxon Mobil (XOM:
60.53, -0.97, -1.6%) to build a refinery in the southern province of Fujian. Aramco is also doing engineering work for another Sinopec refinery in China's northeast.