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Saudi Aramco inks term crude supply with China's CNOOC for Huizhou refining project

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Saudi Aramco has signed a one-year crude supply contract with China National Offshore Oil Corp. for its upcoming Phase 2 Huizhou refining project, as Saudi Arabia steps up efforts to secure its share in its largest market, where its top supplier status was recently threatened.

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Under the contract that was signed earlier this year, the Saudi national oil company will supply one VLCC per month of Arab Medium crude oil to CNOOC for a year, starting from the second half of 2017, sources close to the two companies said Wednesday.

CNOOC expects to start up the 200,000 b/d Phase 2 project in Huizhou, southern China, in May 2017.

CNOOC may also consider raising the lifting volume of Saudi crude once the Phase 2 project is running, one source said.



The initial volume translates to a total supply of 22 million-26 million barrels over 12 months, considering each VLCC can carry around 1.8 million-2.2 million barrels of crude.

Unlike the existing Phase 1 crude processing units, which are designed to process heavy, sweet crude, CNOOC's Phase 2 refining project is designed to process sour crude from the Middle East.

The plant will also process domestic crude produced at CNOOC's own offshore oil fields, a source with CNOOC said.

Once the Phase 2 project starts commercial operations, Huizhou refinery's total primary crude processing capacity will be raised to 22 million mt/year.

EFFORTS FOR MORE SALES

Russia displaced Saudi Arabia as China's top crude supplier for the first time in 2016, supplying 52.48 million mt, up 23.7% from 2015 and accounting for a 13.8% market share, up from 12.6% in 2015. Saudi Arabia, on the other hand, shipped 51 million mt to China in 2016, edging up 0.9% from 2015, and saw its market share falling to 13.4% in 2016, from 15.1% in 2015.

Increasing Saudi crude supplies to China was one of the agreements signed between the two countries during Saudi King Salman bin Abdul Aziz's recent visit to Beijing.

Besides the CNOOC deal, Aramco has been in talks with China National Petroleum Corp.'s trading arm Chinaoil and Huajin Chemical, to supply crude to their respective refineries.

With Chinaoil, the talks are for supply to CNPC's greenfield 13 million mt/year (260,000 b/d) Yunnan refinery in western China, and the crude would flow through the Myanmar-China oil pipeline.

With Huajin, the talks are for additional supply of Arab Medium and Arab Heavy crudes for the company's 120,000 b/d refinery.

A source at Huajin said that discussions have not yet concluded. Huajin would prefer to buy the crude at market price instead of the Saudi Aramco's official selling price, according to the refinery source.

Both parties in February signed an annual supply contract for Huajin to take a total of 4 million barrels of Arab Extra Light crude over this year, Platts previously reported.

--Staff, newsdesk@spglobal.com

--Oceana Zhou, oceana.zhou@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com