China's Zhenhai refinery
When the world's largest oil producer (Saudi Arabia) partnered with the world's second largest oil consumer (China) in January, strangely it drew little attention in U.S. media.
But it is this latest development that reflects strikingly disparate national perspectives on refining capacity and global needs.
While rising crude oil prices exert pressure on refineries worldwide, different countries seek solutions in different ways. In the U.S. we are losing refining capacity annually and yet we continue to regulate them out of existence. China, on the other hand, partners with Middle Eastern suppliers and builds for the future.
China's latest deal is simply "the largest expansion by any oil company in the world", and as a result, Sinopec's deal earlier this year with Saudi oil giant Aramco will allow a major oil refinery to become operational in the Red Sea port of Yanbu by 2014.
The $8.5 billion joint venture, which covers an area of about 5.2 million square meters, is already under construction. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 percent stake in the plant while Sinopec will own the remaining 37.5 percent.
China's investment in oil infrastructure and refining capacity is unparalleled. And more importantly, it executes a consistent strategy of developing world-class refining facilities in partnership with OPEC suppliers. Such relationships mean economic leverage that could soon subordinate U.S. relations with the same countries.
Egypt is building its largest refinery ever with investment from China.
Shortly after the partnership with Egypt was announced, China signed a $23 billion agreement with Nigeria to construct three gasoline refineries and a fuel complex in Nigeria.
The 2010 deal between state-run Nigerian National Petroleum Corporation and China's State Construction Engineering Corporation Ltd. is expected to add 750,000 barrels a day to Nigeria's refining capability.
And in China today gasoline and diesel prices were increased to ensure domestic supply. Bloomberg reported that China's biggest refiners, China Petroleum & Chemical Corp., urged the government to increase prices in order to stem their processing losses due to rising crude oil costs. "This latest move is expected to bring China oil refiners such as Sinopec closer to break-even," according to Gordon Kwan, a regional energy analyst at Mirae Asset Securities in Hong Kong.