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Chinese refinery cancellation to have far reaching consequences

Hydrocarbon Engineering,

Jeffrey Kerr, GlobalData’s Managing Analyst for Downstream Oil & Gas, has commented that the Chinese government’s decision to cancel a 400 000 bpd refinery project in Taizhou will have ‘far reaching consequences’ for the Asia Pacific refining industry’s future growth potential.

‘If this refinery, along with all other currently proposed projects, was completed successfully, Chinese refining capacity could have been expected to climb from its current level of 10.51 million bpd to 13.66 million bpd by the end of 2020, before reaching 14.1 million bpd in 2025’, the analyst outlined.

However, the analyst believes that the Taizhou refinery project, which was to cost Royal Dutch Shell, Qatar Petroleum and China National Petroleum Corporation (CNPC) upwards of US$ 13 billion to develop, was ‘doomed almost from the beginning’.

Pressures from local officials, opposition from some members of Chinese government and reports that Royal Dutch Shell, Qatar Petroleum and CNPC were having difficulties in securing land for the project all contributed to its cancellation.

An ongoing investigation by the Chinese government into corruption within CNPC could also have been a reason to draw the project to a close.

Kerr believes that the government’s decision to cancel the project has led to a high level of uncertainty surrounding the fate of many future projects in the region.

‘The cancellation of this significant project has raised some doubts over the development of other refineries that are set to come onstream in the region between 2016 and 2025. For instance, industry heavyweights Kuwait Petroleum, ExxonMobil, Petroleos de Veenzuela and Total are all involved in joint venture refinery projects that are planned to come onstream over the next few years, but it now remains to be seen whether these investments are now at risk’.

‘Overall, the cancellation of this refinery seems to be a herald for the end of Asia Pacific’s refining construction boom, and a sign that the region’s refining industry may have reached a tipping point in total capacity’, Kerr concludes.

Adapted from a press release by Emma McAleavey.

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