Saudi cabinet approves expansion of oil, gas relations with China: SPA

Dubai (Platts)--24Jan2012/553 am EST/1053 GMT

The Saudi cabinet has mandated Oil Minister Ali Naimi to enter into negotiations with China in line with a protocol signed between the two sides to expand cooperation in the oil, gas and minerals sectors, official news agency SPA reported Monday.

The announcement came following the weekly cabinet meeting chaired by King Abdullah and refers to a wide-ranging energy cooperation protocol agreed during Chinese Premier Wen Jiaboa's visit to the kingdom on January 15.

There were no details about the agreement, which followed the signing of an implementation agreement between China's Sinopec and Saudi Aramco to build a 400,000 b/d oil refinery at Yanbu on Saudi Arabia's Red Sea coast.

OPEC kingpin Saudi Arabia is the biggest supplier of crude oil to China, followed by Angola and Iran.

Although China has indicated it would honor only UN Security Council sanctions against Iran rather than heed a US call to lessen its reliance on Iranian crude, Wen in talks in Riyadh, Abu Dhabi and Doha explored the possibility of diversifying China's oil import sources.

Naimi said in a CNN interview January 16 that Saudi Arabia was ready to supply more oil to China if asked. Saudi Aramco CEO Khalid al-Falih told CNN in an interview later that week that China had a thirst for energy that the state-owned company was willing to sate.

"There is a thirst for energy and the most cost effective and convenient way to quench that thirst is to provide them with that energy," Falih said. "...China needs us as much as we need them."

"We are a major investor in China and we supply them with 800,000 barrels per day and there is a great deal of trust and interdependence and then of course for the first Chinese investment to take place inside Saudi Arabia by Sinopec shows that they are also seeing a lot of faith in the Saudi market and in Saudi Aramco and we see it as a good strategic rebalancing of our portfolio to have them invest here in Saudi Arabia as we continue to look for opportunities to grow our investments in China," he said.

China, he added "is the engine of the global economy" and with population growth and urbanization, the world's second biggest energy consuming nation had a "thirst for energy and hopefully what we want to do is to build around this energy corridor to exchange goods and services and trade that adds value to the Chinese economy and the Saudi economy that goes beyond the trade in crude oil," Falih said.

But he added that these investments would have to be commercially driven and make economic sense to both sides.

--Kate Dourian, kate_dourian@platts.com

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