Sinopec May Import 76% of Its Crude Oil for Processing Next Year

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China Petroleum & Chemical Corp. aims to produce 42 million tonnes of domestic crude oil next year and hopes to reach a crude processing capacity of 196 million tonnes, representing a 34% growth from last year, the company announced yesterday.

The figures may suggest that Sinopec will import around 150 million tonnes to fill its refineries, or 76.5% of its crude processing capacity, a further boost from last year's 70%, while obtaining a small fraction of crude from other domestic sources. About 101.47 million tonnes of the total 144.83 million tonnes of crude oil the company processed last year was imported, according to its annual report.

The company's crude import dependency is likely to stand at 73.5% this year, with crude oil output targeted at 41 million tonnes and crude throughput at 156 million tonnes.

The ambitious plan to upgrade refinery capacity came after a gesture from the central government indicating that a more market-oriented oil product pricing scheme will be adopted in the near future, which may turn the refining sector into a more profitable business. The company plans to expand the capacity of five of its key refineries in the Yangtze River region.

Under the current pricing system, in which fuel prices are kept artificially low by the government, the country's refineries sometimes choose to shut down some of their facilities for maintenance despite the strong demand for fuel in the domestic market, since record-level crude oil costs sometimes make refining a money-losing business.

Next year's crude output goal is for a 4.6% hike from last year, while natural gas output is forecasted to increase by a significant 37.6% from last year to hit 10 billion cubic metres in 2008.

The oil giant, Asia's largest refiner, will see oil product sales reach 120 million tonnes next year, with 75 million tonnes through retail. It will have a crude port capable of handling 150 million tonnes, 6,300 kilometres of major crude oil pipelines and 7,200 km of oil product pipelines.

Around 92% of Sinopec's crude production and 40% of oil product output are transported through pipelines.

The company, the world's forth largest ethylene producer at the end of last year, will also expand its ethylene production capacity to 7.1 million tonnes in 2008, up 14.5% from last year, due to the company's plan to put RMB 19.46 billion ($2.54 billion) into the chemicals segment this year. Ethylene projects in Fujian, Tianjin and Zhenhai will be upgraded as a result.

The company will also boost the capacity of a refinery in the city of Wuhan in central China by 60% in order to supply feedstock to its planned ethylene facility nearby, which has an annual capacity of 800,000 tonnes.

CNPC Looks for More Syrian Involvement

The China National Petroleum Corp.'s plans to become more involved in Syria's energy sector, which may include building a refinery and further exploration in Syria's waters, is an indication of the Chinese oil giant's efforts to become a bigger player in the global market, industry experts told Interfax today.

According to state-run Xinhua news agency, CNPC is in talks with the Syrian government to jointly build a $1 billion oil refinery with a daily capacity of 70,000 barrels of crude oil, Syrian Deputy Prime Minister for Economic Affairs, Abdullah al-Dardari, said at a press conference yesterday.

Syria will also cooperate with CNPC to upgrade five old oilfields to improve oil productivity, as well as sign a contract with the China Petroleum Technology Development Corp., a subsidiary of CNPC, to import oil exploration and mining machinery with preferential loans from China, according to Syrian Minister of Oil and Mineral Resources, Sufian Allaw.

CNPC will also be invited to explore 5,000 square metres of Syrian waters, Allaw added.

Officials with CNPC were not available for comment when contacted by Interfax.

Syria is not particularly rich in oil resources, and China does not have as close ties with the country in the energy sector as it does with other Middle Eastern countries, such as Saudi Arabia and Iran. However, apart from strengthening bilateral ties, such activities may lead to unexpected discoveries, as in the case of Sudan, where oil discoveries not only boosted the local economy but also brought huge profits to the company itself, Li Weijian, an expert on the Middle East with the Shanghai Institute for International Studies, said.

Cao Xiaoxi, a senior expert with the Sinopec Economy and Technology Research Institute, believes that CNPC's plan to expand exploration activities and refinery buildup in Syria is driven by profits. "With the price of crude oil and oil products staying at high levels on the international market, CNPC has enough incentives to step up its overseas operations," Cao said.

He further noted that crude oil and oil products produced by Chinese oil companies from their overseas operations are mostly sold on the international market rather than being shipped back home, due to differences in price between the domestic market and the international market, as well as limited domestic refinery capabilities.

So far, CNPC has officially announced it has only one refinery up and running in Sudan.

CNPC made its first foray into Syria in 2005 after winning an EPC (engineering, procurement and construction) contract for the first phase of the ground facility expansion project at the Gbeibe Oilfield. It later made a joint bid with India's state-owned Oil & Natural Gas Corp. for the Al Fruit Oilfield in Syria, footing $575 million for an 18.75% stake in the field, which was previously held by Petro-Canada [NYSE:PCZ].

© InterFax-China 2007

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