Fuel For Thought
August 2011

IEA Projects Chinese Capacity will Increase by 33% by 2016

▪ IEA Projects Chinese Capacity will Increase by 33% by 2016

The International Energy Agency predicted that China would increase its refining capacity by 33 percent by 2016, growing from 10 million to 13.3 million barrels a day. In an example of this growth, China Petroleum and Chemical Corp. (Sinopec) is investing 100 billion yuan (US$15.4 billion) in a new refining complex near the coastal city of Lianyungang. Construction of the new plant, if it is approved by government officials, will begin in 2013, and the new refinery will be operational by 2016. It will have an annual refining capacity of 12 million tonnes a year or about 240,000 bpd.

▪ Indian Refinery to Expand in Kochi, Bina

India’s Bharat Petroleum Corp. Ltd., the country’s third largest refiner, plans to expand its Kochi and Bina plants by 170,000 barrels per day (bpd) by 2015, said Chief Executive R.K. Singh at a June briefing. The cost will be about 180 billion rupees (US$4 billion). The Kochi refinery will be expanded by 110,000 bpd and Bina by 60,000 bpd. Singh expects diesel demand in India to grow by 10 percent this year, boosted by the continued subsidy of diesel fuel prices.

▪ Vietnam to Boost Refinery Capacity by 50%

Vietnam’s Dung Quat oil refinery will expand its capacity by more than 50% at a cost of as much as US$2 billion, said Chief Executive Nguyen Hoai Giang. When the project is complete in late 2015 or early 2016, plant capacity will grow from today’s 130,500 barrels per day (bpd) to as much as 200,800 bpd. This expansion is part of a multi-years effort by Vietnam to switch the country’s long standing status as an exporter of crude oil and an importer of refined products. Plans call for output from the Dung Quat and Nghi Son refinery to supply as much as 70 percent of Vietnam’s domestic demand by 2015.

▪ European Trucks May Be Charged for Air Pollution

The European Union has decided to let member governments charge trucks for air and noise pollution. The recently approved law allows environmental costs to be included in truck tolls, which may rise as much as 27 percent as a result. The new rules will apply to 30,000 kilometers of highways, double the amount covered by current EU rules. The change was adopted, in part, because road transport accounts for 75% of NOx emissions for the entire transportation sector, and trucks account for a quarter of this. The new legislation was first proposed in 2008.

▪ Kenya Cracks Down on Airborne Emissions

Car owners in Kenya, one of the fast growing African countries, will now have to apply for a clean air pollution certificate or face a fine of 500,000 shillings (US$5,550). Garages will be licensed nationwide to inspect vehicles and issue compliance certificates. Car owners have until the end of the year to meet the new rules. Fines and prosecution of violators will begin in 2012.

▪ Oxygenate Production to Grow in China

Chinese chemical manufacturer Yantai Wanhua Polyurethanes signed a deal with U.S. chemical maker Huntsman to secure a license for the production of propylene oxide and methyl tertiary butyl ether (MTBE). Yantai Wanhua plans to build a facility in Yantai, with construction beginning later this year and production starting in late 2013. Details of the deal were not disclosed but Yantai Wanhua Polyurethanes Chairman Ding Jiansheng did reveal that the company wants to build a world-class facility.

▪ Japan Tightens Oil Reserve Requirements

Japan's Trade Ministry has tightened reserves that refiners were required to maintain in reserve back to the normal 70 days of oil requirement. Oil reserve requirements had been relaxed to 67 days of demand and then to 45 days in March following the country's devastating earthquake and tsunami.  Requirements were lifted to make sure that refiners will have enough in stockpiles to carry the country through the extra demand for the summer season and rebuilding in the earthquake-hit areas.   An official from the ministry said that although the oil reserve requirements were relaxed, the volume set aside as reserves actually never dropped to as much as 45 days of demand.

▪ Petrobras to Cut US$35 Billion of Investment Budget

The board of Brazil's state-owned oil and gas company Petrobras announced cuts in its investment budget of as much as US$35 billion through 2015. The cuts in the investment budget will affect projects in petroleum refining and exploration and production.  In addition, government representatives informed Petrobras to keep the prices of gasoline and diesel fuel stable.  Gasoline and diesel fuel sales make up 60% of the company’s income.   Analysts believe that the cuts will not affect development of pre-salt reserves, the biofuels project and diesel fuel improvement projects.

▪ New Sinopec Chairman Suggests Spin-off of Business Segments

Fu Chengyu, the new chairman of China Petrochemical Corp. (Sinopec) says that a spin-off listing might better reflect the valuation of the different business segments of Sinopec.  Speaking at a recent shareholders meeting of the Sinopec Group, Fu said that China's three oil majors are unusual in that the companies cover both the downstream and upstream businesses.  Currently, Sinopec is reporting losses in the refining sector due to current state policy.  The chairman’s remarks triggered speculation about a spin-off listing for the Sinopec Group.

▪ Rapid Project in Johor to Complement Singapore Complex

Malaysia is banking on the recently announced US$20 billion Refinery and Petrochemicals Integrated Development (RAPID) project to turn Southern Johor into a refining and petrochemical center, complementing the existing complexes in Malaysia's eastern corridors and in Singapore. Prime Minister Datuk Seri Najib Razak said the project presents Malaysia with a major vehicle to attract foreign direct investments (FDIs) into the country, bolster private investments and expand the country's access to world-class technologies. "This will not only facilitate upgrading of the country's industrial capabilities into higher value-added activities, but also enable to capture a larger portion of the product value-creation in Malaysia to count towards, and bolster the country's gross national income," he said. Upon commission in 2016, Malaysia's total refining capacity will increase to 935,300 barrels per day (bpd), from the current 635,300 bpd.

▪ "Teapot" Refineries Expand Capacity to Survive

Since Beijing ordered the closure of so-called “teapot” refineries, which have a  refining capacity of one million tons a year or less in 1999, some refineries such as those in Shandong province have responded by expanding capacity to survive. According to Zhao Youshan, an official with China’s General Chamber of Commerce, Shandong’s local refineries will exceed 80 million metric tons in refining capacity in 2011. Included in this group are the Huaxing Group, which will add a six million-ton-per-year atmospheric and vacuum distillation unit, the Zhenghe Group, which is adding a five million-ton-per-year unit, the Shandong Haihua Group, which is upgrading its five million-ton-per-year unit, and Hongrun Petrochemical, which is adding a five million-ton-per-year heavy oil unit.  By expanding their capacity, these private refineries can then attract more capital and form new partnerships. The Shandong refineries are confident they will be able to attract investment, as they are more profit driven and have more flexible management than state-owned refineries.

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