China looks overseas for investment

Last week it was announced that PetroChina was looking to purchase a stake in the proposed Ecuador refinery. The talks between PetroChina and the partners PDVSA and PetroEcuador are in the preliminary stages but it has been reported that the company is eager to spread its global presence.

The proposed refinery will have a 300 000 bpd capacity and will be built in the El Aromo area, Guayaquil. It is hoped that the plant will help meet Ecuadors ever increasing demand for refined products as well as become an exporter to the Pacific Rim. This factor is said to be what attracted PetroChina to the investment opportunity.

Chinese investments

Over the last 10 years China’s oil companies have been looking for overseas investments for several reasons. The main reason has been hedges against price controls in China. China is also building sophisticated refining capacity at home in an effort to meet the increasing demand for refined products as the middle class increases as well as the wealth of the entire country.

12 years ago China’s refining capacity was 4.5 million bpd and was a net importer of refined products. By the end of 2012 it is predicted that the country’s processing capacity will be nearly 10 million bpd. And, by 2017, it is possible that China’s capacity will reach 13.5 million bpd. In comparison, the US will have 19.1 million bpd of capacity by 2017.

PetroChina

PetroChina and its parent company CNPC have been particularly active in their overseas investments over the last 10 years:

• 2009, 49% stake purchase in Nippon Oil Osaka refinery, Japan.

• 50% stake in Ineos refining. Includes Grangemouth, UK and Lavera, France refineries.
• 67% stake in PetroKazakhstan. Includes Shymkent refinery.

• 2.76% stake in Singapore Refining Company.

• Majority partner in Adrar refinery, Algeria.

• Rumoured to be interested in purchasing Valero’s Aruba refinery.

Sinopec

At the moment Sinopec is in discussions with PetroSA to build a joint venture refinery in Coega Bay, South Africa with a processing capacity of 380 00 bpd. The plant is predicted to be completed by 2010 and would run Atlantic Basin crude. The location of the facility will mean that it is suitable to supply South Africa and those trading around the Atlantic and Indian Oceans.

Other Sinopec projects include:

• 2009, 37.5% interest in Yanbu refinery, Saudi Arabia.

• Interested in 10% stake in Repsol.

Chinese demand

Oil product demand in China has grown steadily since 2004 and gasoline demand peaked this February at 1.9 billion bpd. In contract February 2004’s demand was 1.1 million bpd. Demand for diesel and gas oil peaked in November 2011 at 3.6 million bpd.

Reasons to invest

While smoothing returns is a laudable goal for Chinese companies, especially the publically traded divisions, there are many other reasons as to why they seek to invest abroad. Most companies have set up trading arms in major areas of commerce and oil trading such as London, New York, Switzerland, Singapore, Dubai and Houston. They are also engaged in trading cargoes, barges and pipelines.

By gaining physical assets in key locations around the world, Chinese companies are fixing themselves in a good position to supply the needs of the ever growing population. China’s oil companies are diversifying their presence and focusing on markets where they can supply refined products to their home nation, whilst at the same time supplying capital to its poorer regions.

With all this investing, Chinese oil companies are cementing themselves in a position where they will be able to compete with Western companies.

Adapted from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/26072012/chinese_overseas_investment/