Oil & Gas Industry Chinese Oil Companies on Shopping Spree Abroad

Editor: Dominik Stephan

The international oil and gas industry is alarmed, after the rumours about Petro China buying into a proposed refinery in Ecuador hit the market in the last week. This development is, nevertheless, only the latest step in a longer strategy to expand the global footprint of China's booming refining business analysts believe...

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China's refining industry is on shopping spree around the globe...
China's refining industry is on shopping spree around the globe...
(Picture: PROCESS)

Talks with the Ecuadoran government and the other partners in Ecuador like Petroleos de Venezuela and Petro Ecuador underline the seriousness of these plans: Recent press reports suggested that PetroChina was eager to become a partner in the US $ 12.5 billion project.

This particular refinery, located at El Aromo, south of Guayaquil, has long been planned: The 300,000 barrels per day plant will not only produce refined products for Ecuador but would also be situated in a prime position to export its products into the Pacific Rim. Analysts of Global Data believe that this capability was the factor that sparked Petro China's interest.

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While refineries in Europe struggle and the industry in the US is forced to upgrade to meet increasingly stringent environmental norms, refiners in developing nations are about to take of. A recent report by market analysts GBI expects that a total of around 198.1 MMtpa of additional capacity will be installed in Asia and the Middle East during the next five years. More in Refinery Markets in Asia and the Middle East Boom.

A Decade Of Expansion for China's Oil Industry

Thorughout the last decade have Chinese oil companies looked abroad for assets in which to invest for many reasons, chief among them as hedges against price controls at home. The Asian oil market is booming and Chinese companies have built, and are still building, sophisticated refineries to cover the country's increasing demand for gasoline, diesel and jet fuel.

China's Refining Capacity to Outpace the US in 2017

Back in 2000, China’s total refining capacity was estimated with 4.5 million barrels a day, making the country a net importer of refined products. Already by the end of this year, with new-build refinery construction and capacity additions in place, China’s total refining capacity is expected to be just under 10 million barrels a day. Given all capacity expansion and addition plans are carried out as planned, the country could see its total refinery capacity rise to 13.5 million barrels within the next five years (by contrast, the United States is expected to be able to refine 19.1 million barrels by 2017).

PetroChina, and its parent Chinese National Petroleum have been busily extending their refining network to foreign markets. The first drumbeat was the purchase of a 49% stake in Japan’s Osaka refinery from Nippon Oil in 2009, followed by acquisitions in Europe and Asia...

China's public oil company has so far acquired 50% stake in Ineos Refining that included plants in Grangemouth (UK) and Lavera (France); a 67% interest in PetroKazakhstan, including its Shymkent refinery; and a 22.76% stake in Singapore Refining Company. PetroChina is also the majority partner in the Adrar refinery in Algeria.

Expansion Plans for South America

Now it seems as if the company has South America on its list: PetroChina is rumored to be “kicking the tires” of Valero’s refinery in Aruba in another potential purchase. This refinery was shut down back in April due to dismal margins.

Analysts believe that PetroChina can effectively hedge its results in these markets outside of China since, in most cases the company will be allowed to pass along crude oil price increases to customer through higher refiner product prices.

With crude oil reserves depleting and declining margins, the oil and gas industry eyes for alternatives. Natural gas, long–term poor cousin of the crude oil business, could bring a change, insiders bleive... More in Natural Gas Could Gradually Replace Crude Oil

Africa Next in Line for Chinese Oil Companies?

South Africa could be next in line: According to Global Data, Sinopec of China and South Africa’s PetroSA are in preliminary discussions about jointly building a 380,000 barrel/day refinery in Coega Bay, South Africa. Scheduled to be complete by 2019-2020, this refinery could process crudes from offshore production in the Atlantic Basin. The loaction would render it in a prime position to not only meet South Africa’s refined product needs, but also for shipments across the Atlantic and Indian Oceans. Its not the first foreign operation for Sinopec, which also has invested in refining capacity in the Middle East...

Sinopec owns a 37.5% interest in Saudi Aramco’s 400,000 barrel/day refinery at Yanbu, planned to start up by 2015. Sinopec became the minority partner in this project after ConocoPhillips pulled out in 2009. The company is further said to be interested in buying a 10% stake in Spanish integrated oil company Repsol, although no deal has been closed yet.

China's domestic refinery markets are booming: The country's demand for oil products has grown steadily since 2004 with a temporary peak of 1.9 million barrels per day in February, according to International Energy Agency data. In contrast, China’s February 2004 gasoline demand was 1.1 million b/d.

Refinery Markets in Asia Boom

The demand for diesel and gasoil in China peaked at 3.6 million barrel/day in November 2011, from 1.8 million barrel/day in January of 2004. The country’s kerosene demand hit its peak demand at 357,000 barrel/day in January of 2011, nearly doubling January 2004’s level of 223,000 barrel.

China's Oil Industry Establishes Global Presence

But there are other reasons for the Chinese oil industry to go on shopping spree abroad: Most of these companies have already established trading arms in the major commerce centers of the oil trading world in London, New York, Switzerland, Singapore, Dubai and Houston and are actively engaged in trading cargoes, barges and pipeline positions of crude oil and refined products.

By having physical assets in key locations around the world along with trading acumen, the Chinese companies are in a much better position to supply the needs of an increasingly energy-hungry world, market insiders say...

There can be no doubt: China’s oil companies are putting their stamp on the global energy marketplace: They are diversifying their presence and focusing on markets where they can supply refined products to their home, while at the same time supplying much needed capital to regions in need of it. By building a global trading presence, the country's oil industry could position itselve to compete with the established Western companies well into the 21st century.

While markets in Asia and the Middle East boom, Europe’s refinery market suffers from overcapacities. As the Statistical Review of World Energy by British oil–multinational BP shows, a total capacity of 24,516,000 barrels–per–day was installed in Europe and Eurasa in 2010, Accounting for 26.7 percent of the global refining capacity. Despite these impressive figure, it is a shrinking market: The throughput of refineries in Europe and Eurasia has fallen by 13 percent in the past twenty years (from 22682 thousand barrels/day in 1990 to 19664 thousand barrels/day in 2010). Find detailed charts and figures in Small Margins Tighten The Noose on Europe's Refinery Market