The Middle East is decidedly turning east as corporate giants and governments explore new partners and business opportunities in the region. Nothing demonstrates that zeal better than the between $8 billion to $10 billion joint venture between state-owned Saudi Arabian Oil Co (Saudi Aramco) and Petrochemical Corp (Sinopec) to build and operate a 400,000-barrel-a-day oil refinery in Yanbu on the coast of Saudi Arabia’s Red Sea.

The deal, which was advised on by international law firms White & Case and Vinson & Elkins, is particularly significant because it highlights a move by Saudi Aramco to diversify beyond its traditional partners in the West. Saudi Aramco will hold a 62.5 percent stake in the joint venture formed to develop Yanbu Aramco Sinopec Refining Co (YASREF), while Sinopec will own the rest.

State-owned Aramco has already partnered with Sinopec in a joint venture for a Fujian-based plant in southeast China. The Saudi firm’s chief executive Khalid al-Falih, in a speech in mid January, said that Aramco is also in ongoing talks with Sinopec on investing in its Qingdao refinery in China, Reuters reported.

Nabil Issa, partner with King & Spalding in Dubai, said there is a push within the kingdom to embrace alternative markets, following a drop in demand from North America, which has sought to increase homegrown supply through non-traditional methods such as hydraulic fracturing, or fracking. He added that the U.S. has also increasingly turned to Canada for its oil and gas needs, putting pressure on Saudi Arabia, which was once the top supplier for the U.S. Issa, who works out of King & Spalding’s Dubai and affiliated Riyadh offices, is partner in the firm’s Middle East and Islamic Finance Group.

“The last thing the Saudi economy needs is (a) drop in global demand,” said Issa. “If you see that a new customer is coming in from a different region, you will look to do more business across the board with them (him).”

Saudi Aramco also plans to invest $90 billion over the next five years to boost refining capacity to six billion barrels a day, and upgrade that level to eight billion barrels a day within a decade. The company is eyeing Asia and China in particular as key markets to grow capacity, given that China is Asia’s biggest energy consumer.

Saudi Arabia has now become the top oil supplier to China, accounting for roughly a fifth of its total crude imports. Consequently, the kingdom is turning into an increasingly important market for the Asian country as well, which is looking to diversify beyond its borders. PetroChina, one of the largest oil and gas producers in China, has already snatched a string of refinery deals outside the country. For Sinopec, meanwhile, the tie-up with Saudi Aramco marks a milestone for the two countries.

“This transaction represents the singlelargest Chinese investment in the Kingdom to-date,” said Nicholas Song, partner in Vinson & Elkins’ China practice. “It is also Sinopec’s first investment in a petroleum refinery outside of China, and [it] is a strong example of Sinopec’s drive to expand its reach and presence throughout the global hydrocarbon chain.”

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