Partners planning $5 bln refinery in south China; KPC, Sinopec, Shell, Dow in talks talks
BEIJING (RTRS): Sinopec Corp is in negotiations with Royal Dutch Shell, Kuwait Petroleum Corp and Dow Chemical Co to build a refinery and petrochemical plant in south China worth at least $5 billion. Sinopec’s president Wang Tian Pu told Reuters on Friday the partners were preparing to do feasibility studies for the project in Guangdong, which could have daily capacity of 350,000 barrels and would meet Shell’s hopes for a foothold in China’s domestic market. “What we need from foreign partners is management skills and technology,” Wang said on the sidelines of a Sinopec board meeting. Shell told Reuters in an interview earlier this year it was striving to gain entry to the world’s second-largest oil consumer after hopes for taking a share in a new $2.5 billion CNOOC refinery were dashed late last year. China gave initial approval last year to the joint venture valued at $5 billion in the Nansha area of provincial capital Guangzhou, which Kuwait’s energy minister has said will likely have a capacity of between 300,000 and 350,000 barrels per day (bpd). If it goes ahead, the deal would secure the OPEC producer crude sales of about 10 percent of China’s current import level.
It would be one of the largest joint venture investments in China, similar to the $5 billion venture by Exxon Mobil Corp. and Saudi Aramco in the neighbouring province of Fujian and overshadowing the nearby Nanhai petrochemical complex built by Shell and CNOOC for $4.3 billion.
China and India have been leading a host of new refining projects to meet growing fuel demand. But many have been delayed or may be scuppered by surging costs. Based on Kuwait’s recent higher cost estimate for a planned refinery, the Nansha refinery alone could cost up to $8 billion on a per barrel basis.
The talks also mark the return of US chemical giant Dow to China’s rapidly expanding petrochemical market after its long-time pursuit of a tie-up with the Chinese major. The petrochemical cracker would have a 1 million tonnes per year capacity, aimed at meeting surging demand for plastics.
But analysts said commercial negotiations could drag on due to the scale of the venture and parties involved.
The Fujian and Nanhai projects each took more than a decade to land a final joint-venture contract. The venture would also need to get clearance from Beijing’s environmental watchdog.
“It may take long. This time there are four parties,” said an official with an international major.
Foreign firms have been lured by China’s huge retail market and double-digit economic growth, though oil refining margins have been crushed by state-controlled retail prices.
Beijing has pledged to eventually liberalise prices, and oil producers, flush with cash from crude prices above $70 a barrel, may be prepared to take a short-term hit to secure access to China’s vast market.
Beijing is showing a preference toward teaming up with state-owned firms that can offer supply guarantees from producers such as Kuwait and Venezuela, with less need for the technology or financing offered by the majors, analysts say.
Big oil companies have also proved more reluctant than Asian state firms or major OPEC producers to invest in new refining facilities, fearing that the upcycle may crash when new Asian capacity comes online at the end of the decade.