BEIJING: China has approved a $9 billion oil refining and petrochemical joint venture between Kuwait and Sinopec, two sources told Reuters Monday. The project, to be built in the southern coastal city of Zhanjiang, will secure Kuwait a solid outlet for its oil, ahead of competing investors such as Venezuela, Russia and Qatar, all of which are planning refineries in China. Kuwait aims to more than double its crude exports to China to 500,000 barrels per day, versus last year's sales at just under 200,000 bpd. For China, which imports some 55 percent of its crude requirements, a commitment to lock up long-term oil supplies is essential. The Guangdong province venture includes a 300,000 barrel-per-day (bpd) refinery and a 1 million ton-per-year ethylene complex. It makes Kuwait the second OPEC producer after Saudi Arabia to have a major refining presence in the world's fastest growing major oil market. China, which burned some 9 million bpd of oil last year, the world's second-largest after the United States, has rapidly expanded its refining sector over the last two decades to feed a robust economy now the world's second-largest. But the industry, long dominated by oil duopoly PetroChina and state-owned Sinopec, increasingly favors expanding the business on its own, leaving scope only for partners equipped with big supply resources. "It has all the elements needed for a successful case for approval," said Victor Shum of energy consultancy Purvin & Gertz. "It has a petrochemical element as China is a huge importer of basic petrochemicals. It's located in the fast growing south with high demand for fuels. And it has credible crude supply lined up with a major OPEC partner." The project, potentially one of China's largest foreign investments, would be 50-50 owned by Sinopec Group, parent of top Asian refiner Sinopec Corp. "NDRC gave the approval last week," said one Chinese industry official with direct knowledge of the government's decision told Reuters, referring to the country top economic planning body, the National Development & Reform Commission. The announcement should be imminent, the source said. Sinopec officials were not immediately available for comment. Kuwait Petroleum International's Beijing representative office also declined to comment. Oil executives cautioned that the ensuing negotiations could be tough as the JV would compete with a string of fully self-financed refineries Sinopec and PetroChina plan to build in the same region. "Guangdong alone will see quite a lot of new refineries coming up in the next five years. There is concern for surplus capacity and that will decide which project materializes first," said a Beijing-based official with a global energy firm. Kuwait is likely to hunt for a second or a third foreign partner for joint funding, industry officials have said. State-run Kuwaiti Petroleum Corp. in 2009 briefly tapped potential investors Shell and Dow Chemical Co., but companies did not make any commitment for a consortium. The prospect of bringing in more partners may drag the negotiations out, industry experts said.
