Sinopec's proposed US$5 billion joint refinery project with Kuwait Petroleum Corp has gained government approval for preliminary work.

The two companies are allowed to conduct preliminary studies, including a feasibility study, jointly with the Guangdong provincial government, according to a source with the government of Guangzhou, capital of Guangdong Province.

If given the go-ahead the Guangzhou project would become the largest Sino-foreign joint venture in the country so far, overtaking the US$4.3 billion petrochemical complex in Huizhou, Guangdong, co-invested by CNOOC and Shell.

The annual processing capacity of the Sino-Kuwaiti refinery mentioned in the approval is 12 million tons of crude, instead of the previously reported 15 million tons.

The proposed site for the project is in Nansha District, said an executive from Sinopec's Guangzhou branch.

He added that a top priority of the feasibility study will be to gauge the impact on the environment, and the feasibility study will include details on how to meet environmental standards.

Although he did not predict how long the study would take, he said the eventual construction of the project should be quick given the high demand for refined products in the region.

Guangdong Province experienced a tight supply of fuels again in the first half of this year, the provincial economic and trade commission said earlier this week.

Fuel consumption grew by 8.3 percent to 9.67 million tons during the period.

Guangdong is estimated to demand 20.5 million tons of fuels this year, including 7.2 million tons of gasoline and 13.3 million tons of diesel. Yet the supply planned to be allocated to the province by the two Chinese oil majors, Sinopec and PetroChina, adds up to only 19.25 million tons.

The proposed Sino-Kuwaiti project is an extension to Sinopec's Guangzhou refinery. Initial plans are for it to have new ethylene facilities with an annual capacity of 1 million tons.

Sinopec Guangzhou is expanding its annual refining capacity to 13 million tons by the end of this year from its current 8 million tons. Ethylene production capacity is set to rise to 800,000 tons from 200,000 tons.

Sinopec accounts for more than 60 percent of sales of refined products in Guangdong.

Refineries in Guangdong were capable of processing 20.6 million tons of crude and producing 12.33 million tons of petroleum, kerosene and diesel in 2003, both of which accounted for 10 percent of the nation's total, according to the provincial government.

China and Kuwait signed a memorandum of understanding on the refinery last December.

(China Daily July 27, 2006)