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Kuwait, China to speed up multibillion refinery, petrochem project

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  • #3936


    September 25, 2007 (MENAFN – Kuwait News Agency (KUNA)) The state-run Kuwait Petroleum International (KPI) Vice President Mohammed Rashed Jasem met with local authorities in south China’s Guangdong Province, where he conveyed concerns of the Kuwaiti government and Kuwait Petroleum Corp. (KPC) over the slow development of the multibillion Sino-Kuwaiti refinery and petrochemicals plant project.

    In his recent talks here with Guangdong Province Development and Reform Commission (DRC) Deputy Director Li Miaojuan and Deputy Inspector Lin Xinan, Jasem sought support from the local authorities, Chinese sources told Kuwait News Agency (KUNA) on Tuesday.

    “Both Li and Lin assured Jasem their commitments and the special attention they are giving to the project, located in the Nansha area of provincial capital Guangzhou,” the sources said.

    “The Chinese side requested the Kuwaiti party to quickly finalize the feasibility study and submit the report to the central government for approval, ” they added.

    In the separate meeting, KPI China chief Meshari Al-Mahmoud and Lin had an amicable communication on the Guangdong project issue and agreed to proceed with its engineering design, according to the provincial commission’s official Website.

    “The two parties discussed the progress of the Sino-Kuwaiti project work as well as the problems with the allocated site by the local government,” the Chinese sources said, adding that Lin gave his full support and the backing of the DRC — province’s top economic planning agency — to the project.

    The refinery will be built to process 100 percent Kuwaiti crude supplied by KPC, with a capacity of 13 million tons per year (260,000 bpd), while the ethylene cracker unit is slated to have an annual production capacity of 1 million tons.

    China’s biggest oil refiner Sinopec Corp. has formed the joint venture with the KPI-led consortium that also includes Kuwait Petrochemicals Company (PIC) and Dow Chemical Co. of the US.

    According to media reports last month, Sinopec President Wang Tian Pu said his company is negotiating with KPI’s parent company KPC, Royal Dutch Shell Plc, and Dow Chemical, while KPC reportedly proposed the idea of having more foreign partners involved in the project such as Shell and Dow.

    However, Sinopec sources said, “Although Shell was a potential partner in the Guangdong project, it seems that KPC has changed its stance about Shell and decided to drop it out from the project due to many issues.”

    They also cited instructions from the National Development and Reform Commission (NDRC), China’s state economic planner, to drop out Shell.

    UK giant BP Plc also shows an interest in the project, they said. In light of the agreement with BP signed in 2005 seeking joint investment opportunities in China and other Asian countries, KPI continues talks with BP about such potential projects.

    The refinery and petrochemical complex is estimated at USD 5 billion, though its cost may further rise if the project is delayed, becoming the largest-ever Sino-foreign joint venture in China.

    The Guangdong project is set to surpass the USD 4 billion refining and petrochemical joint venture in the neighboring province of Fujian by Saudi Aramco, Exxon Mobil Corp., and Sinopec.

    The feasibility study work of the project is expected to be completed by January next year, followed by NDRC’s official approval to start the full engineering design work that normally takes one year.

    The Guangdong government anticipates the refinery and petrochemicals plant complex to be commissioned in summer 2010, but Chinese experts expressed doubts, saying, “With the difficult negotiation with the foreign parties, the plan may now face a delay, and a more realistic timetable is likely to be 2011 or after.”

    The key issues for the work progress that the Kuwaiti party is raising with the Guangdong government are such as the unsuitability of the site, and adverse impact on the local environment as the project is being built near populated Hong Kong.

    Early September, a former executive officer of Hong Kong expressed concern over the environmental effects resulting from the Sino-Kuwaiti project during his visit to Guangdong Province.

    Similar to the first Sino-foreign refinery project in Fujian, the project is facing another main hurdle which is China’s regulated fuel market that would make it difficult for the foreign parties to recover their investments, as such price regulations may increase their financial burdens and cause negative effects to the economic efficiency of the project.

    In China, the government controls oil prices and refiners can not pass on crude costs to consumers.

    “Construction of the plant would not be a problem, because the Chinese, specially Sinopec, are known to have completed many large projects before schedule, so the project will have a firm schedule once the engineering work has been completed,” said the Sinopec sources.

    In December 2005, Sheikh Ahmad Al-Fahad Al-Ahmad Al-Sabah, former Kuwaiti Energy Minister, and Zhong Yangsheng, Executive Vice Governor of Guangdong Province, signed MOU to build the plant as a joint venture by both nations, paving the way for KPC to participate in the long-term development of China’s oil industry.

    With the support of provincial governor Huang Huahua and the personal initiatives of Guangzhou Mayor Zhang Guangning, in July 2006, China’s central government and the NDRC gave a preliminary approval of the refining and petrochemicals projects and designated Nansha as the site for the project.

    Demand for oil products is surging in China, the world’s fastest-growing major economy, with its crude oil imports soaring 14.5 percent in 2006 from the previous year, according to government statistics.

    KPC continues to see the Far East as the targeted market for its product where the demand is growing steadily.

    In a bid to accelerate business expansion in the region, KPC opened offices of PIC’s marketing arm Equate in China, and then established its sales office in 2005 in the Chinese capital.

    Recently, KPI also strengthened its presence in China with the opening of its new office in Beijing.

  • #7254


    Update Sino-Kuwaiti Guangdong Refinery/Coker Addition – recent announcement that KPC & Sinopec will be eliminating Shell from the $5 billion new Nansha grassroots refinery (+coker) & petrochemical plant project for Guangdong province. The NDRC in China gave instructions that Shell be eliminated to speed up progress & avoid any further delays /cost increase on the project & KPC also changed its stance on Shell.  UK’s BP Oil is listed as possibility but may have similar issues about the project. The timing on Feasibility study &
    Key issues for the project are: the unsuitability of the plant location, it’s impact on local environment & nearness to Hong Kong (which were also raised by KPC). Another major issue is Chinese governments control of oil & fuel prices and inability to pass cost increase to consumers – which are going to make crude contracts with 100% supply from Kuwait difficult. (But a similar $4 billion project in Fujian with Saudi’s seem to have overcome these hurdles.) 
    Shell may eventually consider itself lucky for dropping out. These issues would make any International Investor or Western world expansion-holic sober up and remember that China is not a free market (despite its WTO status?), there are few ownership laws / protections for private investments (even Chinese private investors) and that China’s explosive demand growth for gasoline & fuels will soon remove it as products exporter and profits will have to come from Government controlled consumer markets
    This year China has recently stopped all exports of fuels (gasoline & diesel) to meet shortfall in domestic demand without allowing a cost increase in crude to be passed on to the consumers as mentioned earlier……a shadow of things to come for these new refineries.
    All the farm machinery in China’s Agricultural industry runs on diesel and this sensitive market is also protected from fuels impact by the Chinese government. China has to practice what it calls market economy with socialist principles (i.e. it ignores rules game when it comes to selling prices) because it has to reduce the growing inflation pressures. The government at all cost needs to avoid social unrest as a result of high inflation, and therefore its priority is social stability not profits.
    So all the roads may have led to Rome, but it seems all the Refinery Pipes eventually lead to Beijing, and needs to be high on Risk list.

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