Sinopec And PetroChina Keen To Avoid Over Expansion

China's state refiners aim to boost operational efficiency in a more liberal oil market through only moderate capacity expansions, driven primarily by petrochemicals demand, industry sources said yesterday.

Keen to avoid overbuilding, top refiners Sinopec and PetroChina plan expansion of plants with "premium quality assets", but will rationalise some costly ones, company officials said.

"Our goal by 2005 is to sharpen our competitive edge through restructuring refining assets ... by enhancing the premium assets and eradicating or transferring those of poor qualities," a top planning official with leading refiner Sinopec told Reuters by phone from Beijing.

On paper, the two companies plan to add 37.5 million tonnes (770,500 bpd) capacity over the next four years. But with some closures, the two firms' total capacity is estimated to rise only seven per cent to 245 million tonnes, or 5.03 million bpd by 2005-2006.

Besides expansion, the refiners are also targeting higher utilisation rates of 85-90 per cent by 2005, said the Beijing-based company officials.

The two listed giants together own nearly 90 per cent of China's current 5.34 million bpd refining capacity but ran them only at about 80 per cent in 2001. The remainder 10 per cent capacity are mostly in the hands of local governments.

Leaner operations were needed as China will open its oil markets in a few years time, ushering in competition from Asian exporters like South Korea, Taiwan and Singapore, following its WTO entry in late 2001.

Sinopec plans to add a net capacity of 10 to 15 million tonnes by 2005, or roughly 10 per cent, to its existing 130 million tonne per year capacity, said the Sinopec official.

Upgrading will mostly be focused on plants located in China's economic powerhouse, the coastal belt, which includes China's largest refinery Zhenhai, she said. The other expansion plants are primarily for providing feedstock oil, naphtha, to planned new ethylene projects.

Joining hands with BP, BASF and ExxonMobil, Sinopec is expected to erect three mega petrochemical complex on the seaboard in the next five years to feed a thirsty China market that now imports nearly half its petrochemicals consumption.

Over two million tonnes per year new ethylene capacity will come onstream in cities of Shanghai, Nanjing and Quanzhou, promising to drive up demand for naphtha, the feedstock for making ethylene, which is the basic building block for plastics, chemical fibre and other petrochemical products.

Sinopec units at Gaoqiao and Zhenhai plants are to supply some 70 per cent of the naphtha need of the $2.7-billion 900,000 tonnes per year BP-Sinopec ethylene venture, due in operation early 2005. A new eight million tonnes per year refinery is proposed to provide naphtha to the planned 650,000 tonnes per year Sinopec-ExxonMobil-Aramco ethylene plant in Fujian province.

China's top crude producer and No.2 refiner PetroChina has similar expansion strategy as Sinopec but will keep its capacity largely unchanged by 2005 at 100 million tonnes per year.

"We will make our plants in the coast and key hinterland area bigger and stronger while shutting down small and low-efficient plants, but the overall capacity will basically remain the same," said a Beijing-based PetroChina planning official.

Two refining hubs are on the drawing board - a 20 million tonnes per year plant in northeast coast city of Dalian and a 10 million tonnes per year plant in remote northwest of Lanzhou.

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