In recent years, it has been witnessed that countries have increased their cooperation both to strengthen existing energy investments and to accelerate new energy investments. The growing ties between China and Saudi Arabia can be seen in this context. The two countries are working to realize joint energy investments aligned with their long-term vision and interests. As a Belt and Road Initiative country, Saudi Arabia seeks to increase investment from China. On the other side, China seems keen to have a stake in projects under Saudi Arabia's Vision 2030. The most recent step to strengthen bilateral relations in the energy field is the Memorandum of Understanding (MoU) signed on August 3 between Saudi Arabian Oil Company (Aramco) and China Petroleum & Chemical Corporation (Sinopec). The Memorandum of Understanding envisages the parties collaborating on projects to be realized in Saudi Arabia.
The MoU signed between the two major energy companies aims to establish integration in refining and petrochemicals and strengthen cooperation in construction, engineering, oilfield services, and procurement. The two companies also intend to work together on upstream and downstream technologies. In addition, joint investments and R&D collaboration are targeted in carbon capture and hydrogen production.
Another highlight of the MoU is that Aramco and Sinopec will discuss opportunities to establish a new local manufacturing hub in the King Salman Energy Park. It indicates the Kingdom's intention to encourage Chinese companies to invest in the fully integrated industrial ecosystem targeted by Vision 2030. King Salman Energy Park is a megaproject under construction as part of Saudi Arabia's Vision 2030 goals, which aims to establish a secure supply chain for the Kingdom's major energy companies.
Economic ties between China and Saudi Arabia have already gained momentum. Looking ahead to 2021, Saudi Arabia is China's largest oil supplier (Russia is projected to take this place in 2022). Last year, China procured approximately 87.6 million tons of crude oil from Saudi Arabia, equivalent to 1.75 million barrels per day. According to these figures, Saudi Arabia accounted for 17% of China's oil imports in 2021. On the other hand, in the same year, China purchased 27% of Saudi Arabia's total oil exports.
Another critical issue is the energy projects in which the two countries mutually invest. In the first half of 2022, Saudi Arabia received the largest share of investments in the China-led Belt and Road Initiative. Saudi Arabia was the leading recipient of natural gas investments under the BRI, with a share of $4.6 billion.
Saudi Aramco has also shown interest in planned energy investments in China. In 2019, Saudi Aramco signed an agreement with Chinese companies NORINCO Group and Panjin Xincheng to establish Huajin Aramco Petrochemical Company (HAPCO), a joint venture to build a fully integrated refinery and petrochemical plant. Although it has been questioned whether the project will realize after the sharp drop in oil prices in 2020, a final investment decision to develop the complex has taken by Aramco in March 2022. The project is valued at over $10 billion and is one of the largest Sino-Foreign joint ventures. The project, scheduled for completion in 2024, will enable Aramco to supply the refinery with up to 210,000 barrels per day of crude oil.
Saudi energy companies, notably Saudi Aramco, maintain their appetite for the Chinese market. In February, Saudi Aramco's CEO held talks for further investment in China. Although no exact figures for future investments have yet been announced, there is a concrete demand for new investments from the Kingdom and Saudi energy companies.
The most tangible evidence of the momentum in economic ties between China and Saudi Arabia is the active negotiations between the two countries to use the Chinese yuan in the oil trade. In fact, these negotiations have been ongoing for six years but have recently gained momentum due to the perception on the Saudi side that the US government has not fulfilled its promises to the Kingdom, especially on security issues.
Saudi Arabia's security concerns have historically played an essential role in energy cooperation between the United States and Saudi Arabia. An examination of the Petrodollars mechanism developed by the United States and Saudi Arabia in the 1970s shows that the concept was intended to address the concerns of both sides. The US government's primary motivation was to make the US dollar dominant in global energy trade by trading oil in US dollars with Saudi Arabia after the US energy security was recognized as fragile following the OPEC embargo that led to the oil crisis in 1973. This would indirectly establish US energy security. In return, the Kingdom of Saudi Arabia received important security guarantees from the United States. At a time when Saudi Arabia and the US are trying to re-consolidate their relations, it should be carefully monitored how Saudi Arabia's approach to the use of yuan in oil trade with China will affect global energy markets.
As a major energy consumer, China is looking for new energy partners to ensure the security of its energy supply. In this context, it can be predicted that the Chinese government will continue to take steps to strengthen its political and economic relations with countries such as Saudi Arabia. It is clear that increased cooperation between Saudi Arabia and China will continue to be on the agenda of global energy markets.
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