Foreign investors seeking a foothold in China's oil refining sector are facing a long wait to get their proposed investments approved, as Beijing worries about overcapacity and risks to the environment.
That was the message from many delegates to the National People's Congress, China's annual legislative session which closed Sunday, who drew parallels between the rapid construction of new refineries and the serious overcapacity in China's steel industry.
Most at risk are likely to be proposed refinery investments by Western oil majors. That's because they do not bring guarantees of crude oil supplies, unlike state-owned competitors from resource-rich countries such as Venezuela and Saudi Arabia.
If all projects under construction and under planning are brought online, China's annual refining capacity will reach 800 million metric tons around 2015, said Wei Wenbo, party secretary of China Petroleum & Chemical Corp.'s (SNP) Luoyang unit.
That's far beyond the 550 million tons required to meet China's oil product demand in 2015, Wei said, citing a survey done by its parent company Sinopec Group.
As a result, the central government will likely focus on expanding and upgrading existing refineries in the 2011-2015 period, rather than building new ones. This will particularly be the case on the east coast, where large new refineries will have a much bigger impact on the environment, Wei said.
The seeds of the problem were sown last year when the State Council, China's Cabinet, issued a stimulus plan for the refining and petrochemical industries. This plan called for speeding up construction of major refining and ethylene projects to help support economic growth, which slowed to a seven-year low in the fourth quarter of 2008.
Foreign companies including Royal Dutch Shell PLC (RDSA), BP PLC (BP), Kuwait Petroleum Corp., Petroleos de Venezuela SA and Qatar Petroleum want to build joint venture refineries in China, so curbs on the growth of the nation's refining capacity may mean final approvals are even slower in coming.
"I don't think China would easily say no to foreign companies that can provide us with stable energy supplies. But I wouldn't be surprised to see a long and complicated process of getting the projects approved, particularly in terms of the environmental assessment," said Zhang Mingsen, a deputy chief engineer with Sinopec's Beijing Chemical Research Institute.
China imported a record 203.79 million tons of crude oil last year, which for the first time met over half of its crude needs. That's equivalent to 4.1 million barrels a day.
Kuwait Petroleum knows how "long and complicated" the approvals process can be. Despite an initial agreement back in 2005, its proposed 300,000-barrel-a-day joint refinery project with Sinopec has yet to receive the official go-ahead from Beijing due to hurdles over its location.
The refinery was originally planned in Nansha district of Guangzhou city, but mounting concern over its proximity to crowded areas led to its relocation to the much-less populated Zhanjiang City.
South Africa's synthetic fuels specialist Sasol Ltd. (SSL) is also facing a challenge to get its project sanctioned.
A document prepared by the local-level economic planning agency of Ningxia region indicated Sasol's CNY56 billion coal-to-liquid joint venture project is facing further delays, if not termination.
The document--circulated at the NPC--showed that Shenhua Ningxia Coal Group, Sasol's local partner, had asked a unit of Sinopec Group to put together a rival report on the feasibility of using home-grown CTL technology.
Source: Downstream Today
