BP drops China refinery plan as fuel demand growth slows

Thu, Jan 30 2014

By Chen Aizhu and Judy Hua

BEIJING (Reuters) – BP is dropping plans to invest in a refinery in China, three sources with direct knowledge said, the fourth refining project in recent months to fall foul of a slowdown in growth in the world’s second-largest economy.

China’s fuel consumption rose at the slowest clip in more than 20 years in 2013, ending a decade of rapid demand growth that drove global oil prices to over $100 (60.78 pounds) a barrel and made gaining access to China’s restricted retail market a mouth-watering prospect for international oil firms.

While the fuel market cooled, construction of new refineries continued apace, leaving a capacity glut that hurt refinery profit margins and led to a rapid rise in Chinese fuel exports in 2013.

“There is growing concern of an over-supplied China market, so BP is taking its precautions,” said one oil industry executive, who declined to be named as he was not authorised by his company to speak to the media.

BP is dismantling the 20-strong Beijing-based team tasked with studying the feasibility of taking a stake in a refinery in the southern coastal city of Qinzhou, the sources said.

The team is being reassigned after around two years working on the project to invest in the 200,000 barrels-per-day plant, run by China’s second-largest refinery operator, state-run PetroChina.

PetroChina is currently upgrading the plant to handle a wider variety of crude. The plant cost $2.5 billion to build and started operating in late 2010.

Both BP and PetroChina spokesmen declined to comment.

PetroChina said in a report earlier this month that it had put off starting up two new refineries – a 400,000-bpd joint venture with Venezuela and a 200,000-bpd plant in potential alliance with Saudi Aramco – and delayed expansion of another to counter the threat of overcapacity as oil demand growth slows.

SLOW PROGRESS, COST CUTTING

Slow progress on the project and BP’s internal drive to cut costs contributed to the company’s decision to drop the investment plan, the sources said.

While it has made no headway in refining in China, BP has invested some $4.4 billion in the country’s energy sector. Those investments include the country’s first receiving terminal for liquefied natural gas, a major offshore gas field in the South China Sea, a petrochemical complex in Shanghai and 800 petrol stations – one of the largest for an international energy firm.

International oil majors have gained limited footholds in China’s refining business, which is tightly held by PetroChina and Asia’s largest refiner, Sinopec Corp.

The two firms dominate crude and gas output and imports as well as refining capacity.

U.S. major Exxon Mobil has the biggest presence among oil majors in the refining sector, jointly running a 240,000-bpd refinery and an 800,000-tonne-per-year petrochemical complex in partnership with Sinopec Corp. France’s Total holds a stake in PetroChina-controlled export refiner WEPEC.

Royal Dutch Shell’s plan to build a $13 billion refinery and petrochemical complex in east China stalled last year, first over a land issue and then by the change of strategy of partner PetroChina to cut back on refining spending.

(Editing by Simon Webb)

http://uk.reuters.com/article/2014/01/30/uk-bp-china-refinery-exclusive-idUKBREA0T0PG20140130

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About artidj

I started working as a field engineer in Oil & Gas industry back in 1996. I do this news clipping of the industry and the geography I am interested in, mainly for my own information. I'm glad you find it useful.
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