Saudi Arabia’s aggressive oil strategy failed in China

Each year, the Chinese giant China National Oil Corp. publishes an estimate of when a country’s oil demand could peak. The date has not changed much in recent years – it is estimated around 2030. Only now is the volume of demand at that time causing heated debate: the maximum indicator simply continues to increase all the time.

According to Bloomberg reporter Javier Blas, CNPC said in 2018 that consumption in China would peak at around 690 million metric tons. In 2019, it revised its forecast to 705 million tonnes; in 2020 to 740 million; and in 2021 to 780 million. When recalculated using a typical ratio, the increase from 2018 to 2021 corresponds to a projected demand increase of a whopping 1.8 million barrels per day, almost as much as daily consumption. current oil from Germany.

Despite all the talk of slowing demand in China – whether because of climate change policies or the brakes on economic growth – the Middle Kingdom is consuming more and more crude oil. And this trend will continue for at least a few more years thanks to the new agreements with Saudi Arabia.

The Saudis have been trying to crack China’s oil industry for decades, trying to buy stakes as a springboard to ship more oil to the PRC. It’s a well-established strategy: they’ve done the same in other major oil markets, investing in refineries from Japan to the United States to South Korea. In exchange for their capital, the Saudis stepped up the sale of oil. This type of investment in the industry in exchange for crude oil guarantees stable demand for their oil in the largest emerging market.

However, in China, the Saudi strategy did not work. Riyadh had nothing to present after several decades of effort. Until now, KSA only held a 25% stake in a 300,000 barrel per day refinery in Fujian province. This project comes from the mid-1990s, when Beijing opened up its refining sector a little to attract capital and know-how.

All in all, Riyadh’s expansionist strategy in China has failed, and the producing country is content to be a mere supplier, like everyone else. Undoubtedly, Saudi Arabia sells huge volumes of raw materials to China and will further increase the supply, but that’s it. She failed to enter the market as a participant and owner of a stock. Most likely, Riyadh will supply more and more oil to China, but will not affect the local market.