Sinopec, Kuwait Petroleum to Build $9 Billion Refining Venture

Bloomberg.com

By John Duce and Eugene Tang

May 11 (Bloomberg) — China Petroleum & Chemical Corp. and Kuwait’s national oil company will build a $9 billion refining complex in southern Guangdong province that may be the biggest foreign venture in the industry.

Sinopec, as China Petroleum is known, will hold the largest stake and the project will include a third partner, Huang Wensheng, the Beijing-based spokesman of Asia’s largest refiner, said by telephone today. Either BP Plc or Royal Dutch Shell Plc may be an investor, Zhang Guobao, the head of China’s National Energy Administration said yesterday.

Kuwait, the fifth-biggest supplier of crude oil to China, has been in talks to build the plant since at least 2004 and an agreement was reached after the Chinese government deregulated fuel prices to ensure refiners a profit. The complex overtakes Exxon Mobil Corp.’s $5 billion Fujian project as China’s largest refining venture with an overseas partner. Exxon’s project was concluded in 2007 after 12 years of negotiations.

“When you consider that Sinopec’s capital expenditure this year is about 111 billion yuan ($16.2 billion) then $9 billion total investment is a very big number,” saidWang Aochao, an analyst at UOB-Kay Hian in Shanghai.

Sinopec shares rose 1 percent to HK$6.40 in Hong Kong trading after climbing as much as 3.2 percent. The stock has advanced 35 percent this year compared with the 21 percent gain in the benchmark Hang Seng index.

Li Lusha, Shell’s China manager of media relations, and BP’s Beijing-based spokesman Michael Zhao, declined to comment about the venture.

Capital Expenditure

Sinopec plans to increase capital expenditure by 4 percent this year, with spending on refining rising about 35 percent, the company said last month in a statement. The refiner is boosting investments in oil processing after China introduced in December a price mechanism for setting gasoline and diesel prices that takes into account the cost of crude oil and a 5 percent profit for refiners.

Kuwait and China signed accords to cooperate in oil and gas, transportation, education and environment protection over the weekend. Emir Sheikh Sabah al-Ahmed al-Sabah is in Beijing until May 13.

Exxon will triple the oil refining capacity of the Fujian plant to 240,000 barrels a day. A so-called steam cracker will produce 800,000 tons a year of ethylene. The other plants will produce 800,000 tons a year of polyethylene, 400,000 tons a year of polypropylene and there will be an aromatics complex based on a 700,000 tons-a-year paraxylene unit.

Refining Capacity

By comparison, the Kuwaiti venture in Guangdong will have a refining capacity of 300,000 barrels a day, Kuwait News Agency reported April 28, citing the country’s oil minister. No other details were available.

The project’s location may be moved to Zhanjiang from an earlier plan of Guangzhou, Zhang told reporters yesterday, adding talks between the companies are still continuing. The plant will include an oil refinery and an ethylene plant and the complex should be built away from ‘big cities,’ he said.

Kuwait Petroleum wants to be among the top five oil suppliers to the world’s fastest-growing economy in three years, Fahad al-Shatti, a Beijing-based sales representative, said in April 2008.

China Petroleum signed a 116.9 million-dinar ($402 million) five-year contract with Kuwait to build five oil rigs in the Gulf state, Kuwait Petroleum ChairmanSami al-Rushaid said last month.

The contract is part of Kuwait’s plan to boost oil output to 4 million barrels a day by 2020. The Persian Gulf nation, the fifth-largest producer in the Organization of Petroleum Exporting Countries, pumped 2.14 million barrels a day in February, according to data compiled by Bloomberg.

To contact the reporter on this story: John Duce in Hong Kong at[email protected]; Eugene Tang in Beijing at[email protected]

Last Updated: May 11, 2009 00:27 EDT

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