Sinopec, Aramco May Agree on Oil Supply, Refinery

By Winnie Zhu and Wang Ying

Feb. 9 (Bloomberg) -- China Petroleum & Chemical Corp., Asia’s biggest oil processor, and Saudi Aramco may sign crude supply and refinery service accords during President Hu Jintao’s visit to Saudi Arabia this week, a company official said.

Sinopec, as China Petroleum is known, will provide engineering services to two refineries in the kingdom and won’t have any stake in the plants, said the official with Saudi Aramco, who declined to be named because of internal rules. The companies may sign a framework agreement on crude supply and extend a gas contract, he said.

China, the world’s fastest-growing major economy, is seeking overseas oil and gas shipments as benchmark crude prices in New York trade at 70 percent below July’s record. Saudi Arabia, which has the most oil reserves in the world, wants to tap demand from the world’s second-largest oil user.

“We see strong long-term growth in China’s demand for imported oil because of the limited increase in domestic production,” Yin Xiaodong, an analyst with Beijing based Citic Securities Co., said by phone. “China’s crude oil demand may rise by as much as 5 percent this year and growth may reach about 8 percent annually after 2010.”

China will seek to promote energy cooperation during Hu’s trip to Saudi Arabia Feb. 10-12, Assistant Foreign Minister Zhai Jun said last week. The visit to the kingdom will be the Chinese president’s second in three years. After Saudi Arabia, Hu will travel to Mali, Senegal, Tanzania and Mauritius.

Huang Wensheng, the Beijing-based spokesman of Sinopec, wasn’t immediately available for comment when contacted by phone.

Gas Contract

Sinopec in March 2004 signed an agreement with Saudi Arabia to search for gas deposits in an area south of the kingdom’s Ghawar oil field, the world’s largest. A gas contract is due to expire this year, the official said, without specifying the field.

Sinopec and Saudi Aramco will spend $300 million over five years exploring for gas in a 38,800-kilometer concession area in the country’s southern desert, known as North Rub al-Khali, the Chinese company said March 7, 2004.

State-owned Saudi Aramco agreed in June to increase crude supply to Sinopec to 1.5 million barrels a day by 2015, the official from the Middle Eastern company said. Oil sales to Sinopec will almost double to 1 million barrels a day by 2010, Mohammed al-Madi, a vice president of unit Saudi Petroleum Ltd. said April 24.

China imported 36 million metric tons of oil from the Middle Eastern nation last year, the most of any country, Zhai from the foreign ministry said last week.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net. Wang Ying in Beijing at ywang30@bloomberg.net.