China's Wen pushes Saudi Arabia for oil access

Reuters, Sunday 15 Jan 2012

Chinese premier presses Saudi Arabia to secure energy needs for his country's future investments

Chinese Premier Wen Jiabao pressed Saudi Arabia to open its huge oil and gas resources to expanded Chinese investment, Xinhua news agency reported said Sunday, against a backdrop of growing tension with Iran and worries over its crude exports to the Asian power.

The Saudi kingdom is China's biggest source of imported oil, and securing energy security was high on Wen's agenda in Riyadh, in part reflecting concerns about how nuclear tensions and sanctions could undo ties with Iran.

"China and Saudi Arabia are both in important stages of development, and there are broad prospects for enhancing cooperation," Wen told Prince Nayef, who is a senior member of the Saudi government, according to Xinhua.

"Both sides must strive together to expand trade and cooperation, upstream and downstream, in crude oil and natural gas," said Wen, referring to access to oil and gas extraction and then processing them.

The Xinhua report made no mention of any discussion of Iran, whose oil exports to China face pressure from new US sanctions. The threat of sanctions is a particular worry for China, the biggest buyer of Iranian oil. Only Saudi Arabia and Angola sell it more crude.

"Beijing is concerned with the potential response to Iranian bellicose statements and with the spike in oil prices that would ensue from greater turmoil in Syria and Iran," says Michal Meidan, an analyst in London with the Eurasia Group who studies Chinese energy investment and policy.

Late on Saturday, the Chinese Foreign Ministry denounced US punishment of China's state-run Zhuhai Zhenrong Corp.

On Thursday, the Obama administration invoked US law to sanction Zhuhai Zhenrong Corp, which it said was Iran's largest supplier of refined petroleum products.

"Imposing sanctions on a Chinese company based on a domestic (US) law is totally unreasonable, and does not conform to the spirit or content of UN Security Council resolutions about the Iran nuclear issue," Chinese Foreign Ministry spokesman Liu Weimin said in a statement on the ministry's website.

"China expresses its strong dissatisfaction and adamant opposition," said Liu.

The Obama administration said its sanctions against the Chinese company and two other firms are part of a broadening effort to target Iran's energy sector and press Tehran to curb its nuclear ambitions, which Western governments say appear aimed at developing atomic weapons.

Iran says its nuclear activities are legitimate and entirely for peaceful means.

China cut oil imports from Iran in January and February in a commercial dispute over contract terms, and has been looking for alternative supplies.

Yet China is unlikely to dramatically boost crude imports from Saudi Arabia, even with the Iranian worries, said Meidan, the Eurasia Group analyst.

"In the likely event that Iran will offer discounted oil, Chinese traders will buy more Iranian barrels and could consequently reduce their Saudi imports," she said.

"Wen will therefore need to convey both commercial and diplomatic realities to Saudi Arabia, China's number one source of crude imports, and ensure that bilateral ties remain on steady footing."

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Wen also said his government wants "strong and reputable" Chinese companies to invest in Saudi Arabia's ports, railways and infrastructure, Xinhua news agency reported.

China and Saudi Arabia should keep deepening cooperation "in the face of changeable and complicated regional and international trends," Wen said, according to Xinhua.

Crown Prince Nayef is King Abdullah's half brother and became heir to the throne in October. The Xinhua report paraphrased the prince as saying that Saudi Arabia is willing to expand cooperation in energy and infrastructure.

China is already Saudi Arabia's biggest customer and the kingdom is keen to diversify its economic ties.

On Saturday, the state-run Saudi oil giant Aramco and Chinese companies finalized an initial agreement signed last year to develop a 400,000 barrel per day (bpd) refinery in Yanbu, on the kingdom's Red Sea coast.

Aramco will hold a 62.5 per cent stake in the joint venture to develop Yanbu Aramco Sinopec Refining Co (YASREF), and Sinopec will own the rest.

In the first 11 months of 2011, top supplier Saudi Arabia shipped 45.5 million tonnes of crude oil to China, a rise of 12.9 per cent over the same period in 2010, according to Chinese customs data. Angola and Iran were China's second and third biggest suppliers.

Wen is also scheduled to visit the United Arab Emirates and Qatar.

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