One of the largest companies in the world by revenue, Saudi Aramco has pulled out from a potential joint venture investment to develop a $10 billion refinery and petrochemicals complex in China citing planned cost-cutting.
China is expected to proceed with the project as planned while the association with Aramco for 35 percent of stake remains open for consideration in the future.
In February 2019, the Saudi Arabian oil giant had entered into an agreement with NORINCO and Panjin Sincen to create the largest Chinese-foreign joint venture (JV) for developing a fully integrated refining and petrochemical complex in China.
The US$10-billion complex will have a 300,000-BPD refinery with a 1.5 million metric tons per annum (mmtpa) ethylene cracker and a 1.3 mmtpa paraxylene unit.
Under the terms of the deal, Saudi Aramco was supposed to supply up to 70 percent of the crude feedstock for the complex, which was expected to start operations in 2024. The firm has signed many similar deals last year to lock in future demand for the Kingdom’s oil.
However, the oil price and demand crash triggered by the rise of the pandemic altered all plans of major oil companies, including those of Saudi Aramco, whose revenues, profits, and cash flows dropped with the collapse in prices.
Aramco recalibrated CAPEX and optimized operations recently as it reported a drop in profits. It has, however, remained committed to distributing dividends of $18.75 billion for the second quarter despite taking a severe hit to its earnings.
Last week, reports suggested that Aramco was considering additional cuts to its CAPEX in order to be able to pay its massive dividends. If oil prices continue to hold at the current levels at around $45 a barrel Brent Crude, Aramco will target CAPEX of between $20 billion and $25 billion between 2021 and 2023, according to news sources.