Saudi Arabia's state oil company has suspended a deal to build a $10 billion refining and petrochemicals complex in China, as the company slashes spending to cope with low oil prices stated in a Bloomberg report. This year's oil price crash and COVID-19's impact on global energy demand have changed the calculations for energy projects around the world, and Aramco is planning deep cuts to its capital spending while trying to maintain $75B in dividend payouts, mostly to the kingdom.

 

The joint venture was signed when Crown Prince Mohammed bin Salman was in Beijing in February last year - and at the time was seen as a landmark deal with a key ally. Saudi Arabia wanted to increase market share in Asia and also has encouraged Chinese investment in the kingdom.

 

Aramco decided to stop investing in the facility in China's northeastern province of Liaoning after negotiations with its Chinese partners. The uncertain market outlook was behind the decision.

 

China North Industries Group Corp. and Panjin Sincen were to be the other partners.

 

The Saudis were set to team up with Norinco and Panjin Sincen to form an entity called Huajin Aramco Petrochemical Co. The kingdom was going to supply as much as 70 per cent 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. And the joint venture remains an option for the future.

 

The oil-price crash and the virus's impact on energy demand have changed the calculations for energy companies' projects. Aramco plans deep cuts to its capital spending as it tries to maintain a $75 billion dividend amid low crude prices and rising debt. The kingdom - Aramco's main recipient of those dividends - is suffering a major squeeze on its public finances.

 

Refiners have taken a hit as the virus curbed demand globally and margins have been squeezed. That's changed the investment case for the refining business. 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.