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The Standard: Sinopec eyes joint venture in US$5b refinery project

Fulton Mak and agencies, The Standard
Published: Aug 11, 2007

China Petroleum & Chemical Corp (0386), or Sinopec, is looking at jointly developing a US$5 billion (HK$39 billion) refinery and ethylene venture in Guangdong with Royal Dutch Shell, Dow Chemical, and Kuwait Petroleum Corp.

Sinopec, Asia’s largest refiner, and its would-be oil giant partners are conducting a feasibility study, president Wang Tianpu said in Beijing.

If the project proceeds, it would become the largest joint-venture investment in the mainland, surpassing the Nanhai petrochemical complex built by Shell and CNOOC (0883).

Sinopec did not disclose the estimated amount of its proposed investment for the project.

The Guangdong plant would be able to process 12 million tonnes of crude oil a year, and produce between 800,000 and one million tonnes of ethylene per year. It would also process imported crude from Kuwait.

Deputy chief financial officer Liu Yun said Sinopec posted an operating loss for its refineries business last month and so far this month, but recorded a profit from processing oil in the first half.

Gasoline prices were cut by 4 percent in January amid a drop in global crude oil prices, but since then, they have remained unchanged despite a 17.7 percent jump in the Brent crude index since the beginning of the year. This has exerted greater pressure on mainland refiners, as they are not allowed to pass on rising costs to consumers since prices are under state control.

In April, Sinopec’s then-chairman Chen Tonghai said the refining operation could break even if crude oil prices stayed below US$60 a barrel.

Despite high crude prices and the price cap eroding profits, Sinopec said its overall performance was still satisfactory, partly helped by strong performance in its chemicals segment. Analysts expect crude prices to remain high in this half, given the imbalances betwen demand and supply. Therefore, they said, refiners are likely to suffer losses.

Director Dai Houliang said Sinopec hopes to surpass its target of 291.1 million barrels of oil and 282.48 billion cubic feet of natural gas this year.

On Friday, Sinopec appointed Su Shulin, general manager of its parent Sinopec Group, to replace Chen, who resigned as chairman in late June “for personal reasons.” The media reported he is under investigation for graft.

Sinopec shares closed Friday at HK$7.51, slipping 4.33 percent.

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