China and the Gulf Arab States: Petrochemicals Partners

The International Energy Agency (IEA) projects that peak oil demand will occur within this decade as the global shift towards renewable energy accelerates.

The International Energy Agency (IEA) projects that peak oil demand will occur within this decade as the global shift towards renewable energy accelerates. Sweeping changes are already beginning to curb oil demand, notably the advent of alternative vehicle fuels. However, the increasing use of plastics and synthetic fibers is driving the continued rise in petrochemical feedstock consumption, which the IEA forecasts will outweigh the decline in transport demand through the end of the decade and possibly longer.

China, a petrochemical producing and consuming powerhouse, is making substantial investments in petrochemical facilities expansion. The country’s surge in petrochemical production, driven by its pursuit of chemical self-sufficiency and advancement up the value chain, is boosting global oil demand. Meanwhile, the Gulf states are leveraging their fossil fuel reserves to finance a transition towards a future less dependent on fossil fuels, with a significant focus on petrochemical investments. This strategic alignment has created opportunities for collaboration in the petrochemical sector that could enhance Sino-Gulf relations but also pose risks for both sides, while potentially hindering progress towards achieving net-zero goals.

China’s push towards self-sufficiency and from volume to value

According to the IEA, from 2013 to 2023, China accounted for nearly two-thirds of global oil demand growth. Last year, China’s annual crude oil imports soared to an unprecedented level, indicating a resurgence in fuel demand despite economic challenges stemming from the pandemic-induced downturn.

China’s record-breaking volumes of crude oil imports in 2023 were driven by refinery expansions and efforts to revitalize the economy following the government’s relaxation of COVID-19 mobility restrictions. The addition of new oil processing capacity included the commissioning of the 320,000-b/d Shenghong Petrochemical refinery in Lianyungang, which commenced operations in November 2022, and the 400,000-b/d PetroChina Jieyang refinery, which initiated trial runs in February 2023.

However, the IEA predicts that the global oil market will face an oversupply in 2025, largely attributed to the deceleration in Chinese demand. Although China accounted for 80% of the demand growth among non-OECD members in 2023, its share is projected to decrease to 43% this year and 27% next year due to slowing economic growth and the rapid adoption of oil-substituting technologies like electric vehicles (EVs) and high-speed rail. According to the latest forecast by the Economics and Technology Research Institute (ETRI) of the state-controlled China National Petroleum Corporation (CNPC), China’s overall oil consumption is expected to peak before 2030. Yet, despite entering an era of low oil demand growth, China is expected to maintain a substantial appetite for oil largely due to its use in petrochemicals.

Global population growth, urbanization, and the expanding middle class all indicate increasing demand for petrochemicals, which are rapidly emerging as the primary driver for global oil consumption. Petrochemicals are projected to contribute to over a third of the growth in oil demand by 2030 and nearly half by 2050.

The most significant change in the global petrochemical industry in recent years has been the rise of China and the broader Asia region as central hubs of petrochemical production and consumption. As China emerged as a key center of global manufacturing, its petrochemical consumption surged dramatically. This increase in consumption initially supported the production of inexpensive domestic goods, furniture, and clothing, driving China’s export dominance in markets worldwide.

China is currently the world’s largest consumer and producer of petrochemicals by a wide margin. The country’s strategic initiatives, notably the “Made in China 2025” plan and the Belt and Road Initiative (BRI), have significantly boosted the growth of its petrochemical industry. The former has done so by emphasizing innovation, technology upgrades, and the production of high-value products. The latter has spawned joint venture partnerships and spurred investments in petrochemical facilities along its routes, particularly in countries rich in natural resources or strategically located for market access. Importantly, identifying petrochemicals as a strategic industry has led to increased governmental support, including subsidies and favorable policies, to expand domestic production.

China’s rapid rise in the petrochemical industry has profoundly impacted related sectors. The petrochemical industry in China is tightly interwoven with the energy sector, supplying essential raw materials for automotive manufacturing, construction, electronics, pharmaceuticals, and consumer goods. Additionally, this growth has fostered the development of associated industries such as petrochemical equipment manufacturing, transportation, logistics, and packaging.

The application of petrochemical products across Chinese industries is extensive, ranging from plastic polymers, construction materials, and textile components to feedstock for chemical synthesis. Chinese demand for petrochemicals is surging, having doubled over the past seven years. The country currently accounts for almost half of global petrochemical demand. As China’s industrial and manufacturing sectors continue to develop, these products will remain essential in supporting the nation’s economic growth and meeting the needs of various industries and consumer markets.

China’s robust demand for petrochemicals is also driving an unprecedented expansion in domestic production capacity. In 2023, China accounted for 60% of the increase in petrochemical capacity worldwide. China, which is responsible for two-thirds of the newly added ethylene capacity, is also set to triple its domestic paraxylene (PX) capacity, a critical raw material for polyester production.

China’s leading oil refiners are building plants specializing in petrochemicals, rather than gasoline and diesel. This serves as a strategy for state-owned and private enterprises to navigate the transition towards green energy by diversifying away from traditional transport fuels into alternative energy sectors. Additionally, it aligns with Beijing’s initiative for petrochemical self-sufficiency, which gained momentum in 2014, aiming to enhance economic value amidst a rapidly aging population and escalating wage costs.

The IEA estimates that China will add production capacity for ethylene and propylene — both crucial for industrial, automotive, and construction applications — that is equivalent to the combined existing capacity in Europe, Japan, and South Korea. When this capacity comes onstream, China will require larger imports of products such as naphtha and ethylene, feedstocks for petrochemical crackers that produce the basic building blocks for making plastics.

Chinese enterprises are not only aiming to achieve energy security through expanded petrochemicals production capacity but also striving for greater profitability by advancing up the value chain. Wanhua Chemical, Zhejiang Petrochemical Corp (ZPC), Hengli Petrochemical, and Sinopec Corp are spearheading the transition from producing basic petrochemicals for polyester fabrics and plastic packaging to manufacturing higher-value products like polyolefin elastomers (POE) for solar panel cell protection, ultra-high-molecular-weight polyethylene for lithium-ion battery separators, and carbon fiber for wind turbine blades. Initiatives such as these align with Beijing’s call for industry players to overcome technological barriers, develop local supply chains, and leverage China’s status as the world’s largest producer of solar panels, EV batteries, and electric cars.

The Gulf Arab States leveraging feedstocks’ advantage

In addition to China, the Gulf Cooperation Council (GCC) region has also seen significant growth in its share of global petrochemical production in recent years. The Gulf Arab states are increasingly focusing on petrochemicals as a crucial part of their economic diversification strategies and as a promising hedge in a decarbonizing world. To adapt to the “green transition,” they are looking to use renewables to meet growing domestic energy demands that threaten oil export capacity, explore export options for renewable energies like electricity or green hydrogen, and secure hydrocarbon markets less impacted by the transition, particularly petrochemicals.

The downstream industry stands as the primary economic engine of the GCC region, after oil and gas. Petrochemicals and commodity polymers dominate chemical exports both in volume and value, leveraging proximity to feedstock and the high profitability of polymers. Saudi Arabia leads chemical production within the GCC, trailed by Qatar and the UAE, collectively representing 93.4% of the region’s total capacity. GCC petrochemical sales exceeded $100 billion in 2023, with Saudi Arabia dominating in revenue generation within the sector.

Over the past decade, Gulf energy producers have made substantial investments in refineries, highlighted by Saudi Aramco’s launch of the Jazan facility in 2021 and Kuwait’s successful commissioning of the long-delayed al-Zour facility. Looking ahead, the energy-rich Gulf region is set to focus more on developing petrochemical projects rather than refineries. This shift capitalizes on higher margins offered by petrochemical facilities, plant closures in Europe, reduced production from Russia, and robust global demand for petrochemical products compared to other oil derivatives.

Saudi Arabia is ramping up investment in its petrochemical sector. In June 2023, Aramco and TotalEnergies awarded Engineering, Procurement, and Construction (EPC) contracts for the $11 billion Amiral complex, a future world-scale petrochemical expansion at the SATORP refinery in the Kingdom. Abu Dhabi is also targeting substantial growth in petrochemical production. Abu Dhabi National Oil Co. (ADNOC) is expanding its global refining and petrochemical footprint, with Borouge’s $6.2 billion Borouge 4 project in Ruwais on track to increase polyolefin production by approximately 30%, making it the world’s largest single-site polyolefin complex.

ADNOC is also eyeing significant mergers and acquisitions (M&A) activity in the European petrochemical sector, aiming to bolster its resilience in energy markets beyond 2050. This strategy includes potential mergers, such as the proposed $30 billion integration of Borouge and Austria’s Borealis. Additionally, ADNOC has acquired a controlling stake in Fertiglobe, enhancing its role in the production of urea and ammonia. Most recently, ADNOC has entered “concrete negotiations” on a potential takeover of Covestro AG, a leading German company specializing in the production of plastics and chemicals for construction and engineering.

In Oman, the Duqm Refinery Project, a joint venture between OQ and Kuwait Petroleum International with a $9 billion investment, is positioning itself as a major player in the global energy market. Kuwait Petroleum Corporation is also advancing its petrochemical ambitions with plans for the Olefins-4 complex, focusing on plastics production alongside existing projects like Olefins-3 and Aromatics-2 at the Al-Zour refinery.

Overall, the Gulf region’s strategic shift towards petrochemicals underscores its ambition to solidify its standing in the evolving energy sector. Gulf producers are increasingly focusing on developing integrated refineries with petrochemical facilities, or in some cases, bypassing traditional refinery development entirely. For instance, the Kuwait Integrated Petroleum Industries Company (KIPIC) is actively pursuing financing for the $10 billion Al-Zour petrochemical project, integrated alongside the Al-Zour refinery. Meanwhile, Saudi Arabia is pursuing crude-to-chemicals initiatives both domestically and abroad.

The Gulf states are well-positioned to benefit from the global growth in petrochemical demand due to their large-scale plants, abundant energy resources, and low production costs. Their new strategies are likely to transform Gulf oil companies into diversified energy firms, broadening their activities to include oil production, solar energy, technology development, and plastics manufacturing. In the process, they are redirecting their commercial attention to Asia and other emerging markets, where oil demand is expected to remain resilient.

Sino-Gulf synergies

Strong interdependencies have developed in the oil sector between the Middle East and Asia, particularly between the Gulf states and China. Cross-regional capital flows have led to extensive integration across all steps of the oil value chain. Petrochemicals, essential for producing plastics and other synthetic materials, play a crucial role in these linkages.

With China’s rise as a manufacturing powerhouse and its soaring demand for petrochemicals, much of this need is fulfilled by petrochemical plants in the Gulf. Roughly one-fourth of the GCC’s chemical imports and exports are with China. Notably, ethylene is produced in massive integrated refineries and petrochemical complexes across the Gulf states and exported to the East.

The Gulf states have emerged as major players in China’s oil sector, engaging in numerous joint ventures with Chinese enterprises. These projects, which include refineries, petrochemical plants, transport infrastructure, and fuel marketing networks, aim to secure a market share for Gulf crude exports. This expansion into China’s hydrocarbon industry is part of a broader Gulf state strategy to increase their production of refined oil products and basic chemicals within Asia, utilizing crude feedstock imported from the Gulf.

Saudi Aramco is at the forefront of executing a strategy focused on expanding its downstream presence in high-value markets, enhancing its liquids-to-chemicals program, and locking in crude oil demand. This approach, which includes actively seeking investment opportunities in Asia to bolster its refining and chemicals operations, has resulted in an expanding downstream footprint in China. Since 2009, Saudi Aramco and Chinese partners have established joint venture refinery projects in Fujian (2009), Tianjin (2010), Hebei (2016), Zhejiang (2018), and Liaoning (2019).

Over the past year, Aramco has accelerated its push into China’s refining and petrochemical sector. In March 2023, Aramco, in partnership Norinco Group and Panjin Xincheng Industrial Group Co. Ltd., began construction of their joint venture integrated refining complex in Liaoning. Three months later, the company acquired a $3.4 billion stake in Rongsheng Petrochemical. As part of that deal, Aramco will supply oil to Zhejiang Petroleum and Chemical (ZPC), a subsidiary of Rongsheng that operates a massive refining and petrochemical complex. Following this, Aramco and Rongsheng announced plans to take a 50% stake in each other’s refineries in China and Saudi Arabia. Aramco subsequently reached a preliminary equity investment deal with Jiangsu Shenghong Petrochemical and has since entered discussions to purchase a 10% equity stake in Shandong Yulong Petrochemical and Hengli Petrochemical. Both deals could potentially include crude oil supply agreements.

Aramco and Sinopec are also progressing with a greenfield project in Gulei, Fujian province, first proposed in 2018. Meanwhile, Saudi Arabian Basic Industries Corp. (SABIC), majority-owned by Aramco, started commercial operations of a new polycarbonate plant in Tianjin last year, a joint venture with Sinopec. More recently, SABIC announced plans to build a new petrochemical complex in Fujian province.


Global oil consumption is anticipated to peak in the near future, yet oil remains indispensable in many critical applications where viable alternatives are not yet widely available. In this context, China’s growing emphasis on high-quality development and the Gulf Arab states’ utilization of their feedstock advantages to drive economic diversification are opening new investment and cooperation opportunities in the petrochemicals sector.

Synergies between Gulf and Chinese entities in petrochemicals can yield significant benefits for both sides. For the Gulf states, partnering with China provides access to a vast and growing market, helping to secure long-term demand for their petrochemical products and enabling economic diversification beyond crude oil exports. For China, collaboration with Gulf producers ensures a steady supply of essential feedstocks, supports its industrial growth, and enhances its energy security. Additionally, joint ventures and technological exchanges can drive innovation, improve efficiency, and reduce costs, creating a competitive edge in the global petrochemical industry. Together, these synergies foster economic growth, strengthen geopolitical ties, and promote mutual economic resilience.

On the other hand, Sino-Gulf collaborations in the petrochemicals sector could prove disappointing or disadvantageous if mismatched expectations, regulatory hurdles, or geopolitical tensions arise. For the Gulf states, over-reliance on Chinese markets might expose them to economic risks if China’s demand fluctuates or if there are shifts in trade policies. Conversely, China might face challenges related to supply security and price stability if geopolitical tensions disrupt Gulf oil supplies. Additionally, differences in business practices, regulatory environments, and technological standards could lead to inefficiencies and conflicts, undermining the potential benefits of collaboration.

One consequence of the growing role of petrochemicals is that CO2 emissions from oil will likely peak before overall demand. Petrochemical products are not primarily used as fuels, which means they are not a large source of direct emissions. However, the surge in petrochemical demand is largely driven by the extensive use of plastics. According to the Organization for Economic Cooperation and Development (OECD), plastic consumption is expected to nearly triple by 2060. This expansion in production carries substantial environmental externalities, including greenhouse gas emissions throughout the petrochemical lifecycle and concerns related to water depletion and contamination.

Researchers have explored sustainable alternatives to the continuous rise in global petrochemical production, focusing on changes in production and consumption patterns under various scenarios. These scenarios encompass carbon capture and utilization or storage, renewable-based feedstocks (such as those derived from bio-sources or green hydrogen), direct air capture (both as a carbon source and to mitigate unrestrained greenhouse gas emissions), enhanced plastic recycling, and the electrification of chemical production processes. Despite the potential of these alternatives, each pathway presents its own set of challenges, which constrain their overall feasibility.

China and its GCC partners can and are likely to collaborate on addressing sustainability challenges linked to their activities in the petrochemical sector. However, the reliance on petrochemicals as a pathway may potentially delay progress towards achieving the green transition.

Dr. John Calabrese
Dr. John Calabrese
Dr. John Calabrese teaches international relations at American University in Washington, DC. He is the book review editor of The Middle East Journal and a Non-Resident Senior Fellow at the Middle East Institute (MEI). He previously served as director of MEI's Middle East-Asia Project (MAP). Follow him on X: @Dr_J_Calabrese and at LinkedIn: