China plans $ 3-bn refinery expansion

by Nesa Subrahmaniyan

China, the world's second-biggest oil consumer, plans to spend $ 3-bn on refinery units able to process cheaper, lower-quality Middle East crude oil to cut the nation's annual import bill by as much as 20 %.
The investments over the next two years will boost the profit on each barrel processed by China Petroleum & Chemical Corp., Asia's biggest refiner, and PetroChina. The expansion may help ease a global shortage of capacity to handle oil from Saudi Arabia, the world's No. 1 exporter, and other producers of so-called heavy, sour oil that's high in sulphur.

China's oil import costs rose 86 % to $ 4.66-bn in May because of higher prices and increased purchases to meet soaring fuel demand. Saudi Oil Minister Ali al-Naimi said prices may stay high until consuming countries build more refineries to absorb the kingdom's surplus oil.
"You have no option but to invest because of the incremental growth in heavy crude supply," said Colin Tang, head of energy trading at Calyon's Singapore unit.

China's oil demand last year grew six times faster than in the United States, and a lack of refining units to increase the yield of cleaner-burning fuels from processing high-sulphur, crude oil helped to push prices to records. Almost 25 % of the increase in world oil demand between 2004 and 2030 will come from China, the International Monetary Fund has said. Saudi Arabia is raising production capacity by 14 % by 2009.
Middle East crude oil accounted for 46 % of China's imports last year, down from 51 % in 2003, according to China Oil & Gas Petrochemicals. Angola, Sudan, Congo and other African oil producers boosted market share last year to 35.3 mm tons from 22.1 mm tons in 2003.

OPEC members including the four biggest, Saudi Arabia, Iran, Kuwait and Venezuela, mostly pump heavy crude oil. The group has urged refiners to invest in conversion units that will lead to higher demand for heavy oil.
"Chinese demand is growing, their refining capability is moving towards more sour crude," Jamal al-Nouri, managing director of international marketing at Kuwait Petroleum Corp., said. "That's the type of crude we have."

Sour crude sells at a discount to low-sulphur, or sweet crude, because it's heavier and yields less light fuel such as gasoline. Oil fields that are producing sweet crude, such as those in Texas and the North Sea, are peaking or have peaked, the IMF said in April.
China Petroleum, PetroChina and West Pacific Petrochemical, a venture between Total, PetroChina and chemical trader Sinochem, are building at least 10 sulphur-reducing units. The plants are scheduled to begin operation in the next two years.