Oil giants plan to explore business opportunities together in the Middle East petroleum industry

China Petroleum and Chemical Corp, Asia's largest refiner, signed a strategic agreement on Wednesday with the Saudi Arabian Oil Company, also known as Saudi Aramco, to further explore business opportunities in the Middle East country's oil and gas industry.

The agreement was signed during President Xi Jinping's three-nation tour of the Middle East, as the world's second-largest economy seeks closer political and economic ties with the region.

The deal came after construction began on the second phase of a major Red Sea oil refinery, a joint venture between China Petroleum and Chemical Corp, or Sinopec, and Saudi Aramco with the first phase becoming fully operational in April, Sinopec said in a statement.

The venture, Yanbu Aramco Sinopec Refining Co, estimated to cost nearly $10 billion, covers an area of about 5.2 million square meters. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 percent stake in the plant, and Sinopec will own the remainder.

Large oil imports

China exports textiles, and mechanical and electrical products to Saudi Arabia, still in small volumes, but it imports a large quantity of crude oil from the petroleum-rich country. China's crude oil imports rose by more than 12 percent last year to 800,000 barrels per day.

Experts said China has more to offer, since the world's largest energy consumer has a strong manufacturing capability in oil refining equipment and highly advanced technologies of petroleum processing.

Though Saudi Arabia, the world's major oil exporter and China's largest oil supplier, is rich in fossil-fuel resources, it relies heavily on refined oil imports and is determined to expand into downstream petrochemical businesses.

Xu Xiaojie, an economics researcher at the Chinese Academy of Social Sciences, said China has vast experience in oilfield service and in manufacturing oil refining equipment, potential fields of cooperation between the two countries.

"Saudi Arabia may prevent investors from participating in resource exploration and development, but it has huge potential for growth in technology and engineering services, which Chinese petrochemical companies can help provide," he said.

China's oil processing capacity reached 750 million metric tons in 2014, accounting for 15.6 percent of the world's capacity — second only to the United States — while its ethylene production hit 20 million metric tons, 13 percent in the world's total capacity.

Xu said that export of petrochemical technologies and equipment may become the countries next "calling card" as Chinese companies are encouraged to expand overseas presence.

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