China's top oil refiner, Sinopec Corp yesterday said it had got final government approval to upgrade its ethylene production facility in Guangzhou, South China's Guangdong Province. This could involve an investment of up to 8.4 billion yuan (US$1.03 billion).

 

The Beijing-based refiner plans to increase production at the ethylene cracker to 800,000 tons annually, from the current 200,000 tons.

 

Ethylene is a colorless flammable gas derived from natural gas and petroleum. It is the source of many organic compounds, used in activities ranging from welding to coloring citrus fruits.

 

Sinopec will be the only investor in the project.

 

"We got the go-ahead from the National Development and Reform Commission (NDRC), the nation's top economic policy planner, a few days ago," a senior Sinopec official, who spoke on the condition of anonymity, told China Daily yesterday.

 

 

The official said that every 10, 000-ton increase requires a budget of 120-140 million yuan (US$14.5-17.3 million).

 

"So the total spend on the expansion project is expected to be 7-8 billion yuan (US$863-986 million)," he said.

 

The oil giant will seek partners for technology, infrastructure construction and material supply, the source said. And he did not rule out the possibility of choosing foreign companies.

 

"It will take at least half a year before Sinopec inks all the contracts and kicks off construction," he said, adding it will be at most three years before the new facilities begin operations.

 

Sinopec spokesman said yesterday the expanded ethylene project would use raw material naphtha from its own refineries in the province.

 

"It is not practical for Sinopec to import naphtha for its ethylene production," he said.

 

At the same time, the State-owned oil refiner is increasing the capacity of its Guangzhou refinery to 200,000 barrels a day from 154,000 barrels a day, supplementing the ethylene facility expansion.

 

Both domestic and foreign oil majors are striving to increase presence in the petrochemical sector in Guangdong, to meet surging demand in one of the country's most developed and dynamic regional economies.

 

China National Offshore Oil Corp (CNOOC), the nation's third biggest oil producer, last week announced the start-up of its joint-venture petrochemical complex with Royal Dutch Shell at Huizhou. The CNOOC-Shell venture is able to process 240,000 barrels of crude oil a day and produce 800,000 tons of ethylene annually.

 

Domestic facilities for ethylene production in China fall far short of ever-increasing demand, fuelled by economic growth of at least 8 percent annually.

 

Liu Gu, a senior analyst with Guotai Jun'an Securities (Hong Kong) Co Ltd, said China relied on imports for 62 percent of its required ethylene products last year.

 

However Zhu Fang, a director of the China Petroleum and Chemical Industry Association, said risks still exist in the massive construction of ethylene projects in China.

 

(China Daily February 17, 2006)