China to Tighten Air Pollution Standards

▪ China to Tighten Air Pollution Standards

China will add very small particulate matter (PM) to its air quality standards, a change that could yield big effects. Specifically, China plans to add PM2.5 to the list of air quality indicators in the next revision of national standards, which will be introduced starting with a handful of cities during the current five-year plan. PM2.5 particles measure 2.5 microns or smaller. They have been linked to a host of respiratory and cardiovascular illnesses, a consequence of their ability to penetrate deep within lungs, blood vessels and other organs.

▪ Cheaper to Buy than Build

In order to meet soaring fuel demand, Asian operators may find it cheaper to buy and move refineries than to build them. Officials at Global Hunter Securities who specialize in downstream-energy sector mergers and acquisitions indicated significant interest from firms in both China and India in such deals. Estimates are that buying and moving a refinery would cost half that of building one from scratch. There are numerous shuttered refineries in Europe and Japan, with 50 alone in the U.S. Also, more potentially join the list daily. In September, for instance, Houston-based ConocoPhillips announced it was seeking buyers for a refinery in Pennsylvania, U.S.A. and Tokyo-based Showa Shell said it was scrapping an oil refinery.

▪ Chinese Car Makers to Increase Fuel Economy

Chinese car makers are seeking to produce more fuel efficient models, in response to a changing environment. September last year, Lu Shize, air pollution control director at China's Ministry of Environmental Protection, said automakers should improve the units sold, instead of concentrating on volume. Subsequently, China introduced changes in subsidy rules to boost production of fuel-efficient vehicles. Car makers are already working to boost fuel efficiency. Recently automaker Great Wall Motors signed an agreement with German component maker Bosch to co-develop technology to increase fuel efficiency and to meet stricter emission standards. Great Wall Motors also signed a deal with U.S. parts maker BorgWarner for the same reason.

▪ New Chinese Refinery Has Kuwaiti Ties

Sinopec (China Petroleum & Chemicals Corp.) inked a deal with Kuwait Petroleum Corp. to develop a 300,000 barrel-a-day refinery in Guangdong province at a cost of US$9 billion. The project is scheduled to be completed in 2013. In addition to fuel, the refinery will produce a million tons of ethylene a year. It is part of a long-term expansion strategy of Kuwait Petroleum Corp. Asian markets either are, or are on the verge of being, the destination for more crude oil from the Middle East than North America.

▪ India Plans to Double Refining Capacity

State-owned Indian Oil Corp. (IOC) will double its refining capacity to 2.5 million barrels a day in 10 years, according to IOC's Director for Refineries A.S. Basu. Indian Oil directly or indirectly runs half of the country's refineries. From 2012 to 2017, Indian refineries plan to spend about US$13.3 billion on capacity expansion. Behind this expansion lies a booming economy and soaring car sales, which jumped 30 percent year-on-year for the period ending in March 2011. Those refinery expansion plans may be dialed back somewhat, however, as forecasts by the Indian Automobile Manufacturers Association are for growth to slow in the coming year to 2 to 4 percent. Also, refiners may have to invest heavily to meet the BS IV emission standard that is expected to expand by 2015 to cover 50 cities, from the handful it covers now.

▪ Honda ups the ante on hybrid cars in China

Japanese auto maker Honda announced last year a hybrid push in China. Yashuhide Mizuno, general manager of Dongfeng-Honda, said the car maker will be locally producing batteries and electric motors for electric-gasoline hybrids soon. That will allow the vehicle price to be cut, an important element to making hybrids popular. Late last year U.S.-based Johnson Controls also announced plans to build a US$100 million plant, which will begin production in 2013. The plant will make start-stop batteries, which are used in hybrids and other high-efficiency vehicles. These cars stop and start internal combustion engines automatically as a way to save fuel.

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