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Sinopec plans refinery as CNOOC moves to compete

Eric Watkins
Senior Correspondent

LOS ANGELES, Apr. 3 -- Sinopec Group has proposed building a 300,000 b/d refinery in Zhejiang province, according to a report in China Business News. The proposal by the parent of Sinopec Corp, in conjunction with the local government, includes a 1 million tonne/year ethylene cracker.

The proposal, to be considered by China's National Development and Reform Commission, is part of an effort to replace small, inefficient plants with large ones that often include chemical units to boost competitiveness.

The report did not provide a cost estimate or the proposed location.

Meanwhile, oil producer China National Offshore Oil Corp., challenging Sinopec Group's position as China's top refiner, has identified five small refineries in Shandong province as takeover targets, according to media reports.

The acquisition targets include Fuhai Group, Kenli Petrochemical, Zhonghai Chemical, HaiKe Group, and Shandong Shida Technology Group, each with processing capacity of 1-2 million tonnes/year, according to the Economic Observer.

CNOOC also is conducting talks with two larger plants in Shandong—Lihuayi Group and Shandong Hengyuan Petrochemical—each with processing capacity of 5.5 million tonnes/year, the report said.

If CNOOC proceeds with all the acquisitions, it could have 20 million tonnes/year of processing capacity in Shandong, challenging Sinopec's leading position in the eastern province.

The newspaper quoted CNOOC spokesman Liu Junshan as saying the company sees an excellent opportunity to buy local refineries in Shandong. Domestic refined product prices are lower than oil prices, and the country frequently suffers from fuel shortages, leading most small refineries to reduce or suspend operations under such pressure (OGJ Online, Mar. 28, 2008). Only 33% of Shandong Shida Technology's 1.5 million tonne/year processing capacity has been operating due to the insufficient oil supply.

CNOOC signed a framework cooperation agreement in January with the Shandong provincial government on refining, fuel storage, and logistics facilities. Producer CNOOC plans to deliver oil from Bohai Bay to refineries in Dongying after the acquisitions.

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