Faced with downward trending oil prices, Saudi Arabia’s state oil company Saudi Aramco has put on hold its plan to build a US$10 billion refining and petrochemicals complex in China, according to a Bloomberg report.
Aramco has been said to stop investing in the facility in China’s Northeastern province of Liaoning after negotiations with its Chinese partners due to the uncertain market outlook caused by the Covid-19 pandemic, according to the report.
Bloomberg also said that none of the partners involved in the project: Saudi Aramco, China North Industries Group Corp. or Norinco, and Panjin Sincen, the third partner, responded to queries on the project.
The oil-price crash and the virus’s impact on energy demand have changed the calculations for energy companies’ projects around the world. Aramco plans deep cuts to its capital spending as it tries to maintain a US$75 billion dividend amid low crude prices and rising debt, while Saudi Arabia itself is suffering a major squeeze on its public finances, said Bloomberg.
The deal for the project was signed last year at a time when Saudi Arabia wanted to increase market share in Asia.
Saudi Arabia was to form a joint venture with Norinco and Panjin Sincen called Huajin Aramco Petrochemical Co. and to supply as much as 70% of the crude for the 300,000-barrel-a-day refinery.
The Chinese side will press ahead with the project, which also includes an ethylene cracker and a paraxylene unit, according to the report, with the joint venture an option for the future.
Saudi Aramco had also been in talks with Indonesia’s state energy company Pertamina earlier this year over a refinery expansion project, but negotiations ended without an agreement and Pertamina is looking for another partner.
Saudi Aramco is reportedly planning to cut its capital spending to a range of US$20 billion to US$25 billion this year to pay a US$75 billion dividend it pledged to investors during its initial public offering last year.
The new level of capital spending is largely dedicated to the state-owned group’s exploration and production business and will hold for the next three years.
Spending has been cut across the board to shore up cash as the oil industry contends with a realisation that lower crude prices could be the norm for a long period of time.
Aramco has also said it expected capital expenditure for 2020 to be at the lower end of the original US$25 billion to US$30 billion range and the company posted a 73% plunge in second quarter profits.