China stalls petchem as US competition grows
Beijing, April 29, 2014
China's top refiner Sinopec Corp is scaling back billions of dollars in petrochemical investments in the face of growing US competition in the sector and rising local opposition to oil and gas plants over environmental concerns.
The slowdown marks a break from two decades of expansion led by China's state energy majors, which have placed self-sufficiency above profitability and environmental impact to chase robust demand growth in the world's second-largest economy.
The scaleback by Sinopec, Asia's largest refiner and China's largest petrochemical producer, follows an earlier reduction in its 2014 spending budget in response to the nation's slowing economy and the poor performance of its chemical division.
Rival state refiner, PetroChina, has taken similar steps, stalling a $13 billion venture jointly proposed by Shell in east China and another one in Guangdong with state oil company Petroleos de Venezuela SA.
In the latest sign of a broad slowdown, Sinopec held up its plans to build a $3.1 billion ethylene plant in Qingdao city, a company source said on Monday, after a pipeline blast there last year killed 62 and threw into question its viability as a site for another petrochemical complex.
"It's a sector scaleback," said a Beijing-based industry official with an international energy major, which works closely with Sinopec. The official declined to be named because he's not authorized to speak to the media.
"Sinopec realises that the traditional naphtha-based ethylene crackers are losing their competitive edge ... plus the growing public resistance to big petrochemical plants."
On top of the resistance of Chinese communities, cheap petrochemical building blocks from the US threaten to overwhelm the sector. US shale gas crackers can produce ethylene at less than half the cost of the naphtha-fed crackers typical in Asia, industry experts say.
Over the next five to 10 years, as many as a dozen world-scale, gas-based plants are expected to start up in the US, including some built by Asian firms like Formosa Petrochemical Corp, according to Vince Sinclair, head of Asia-Pacific petrochemicals research at consultancy Wood Mackenzie.
MEGA PROJECTS OUT
Sinopec has shelved or postponed proposals for nearly 4 million tonnes of annual capacity of ethylene, key building blocks for plastics and synthetic fibres, industry sources said, potentially boosting China's petrochemical imports from companies such as Saudi's Sabic and US firm Dow Chemical Co.
Sinopec spokesman Lu Dapeng acknowledged the company's scaleback, but declined to detail the extent or the duration of specific project delays.
Local governments, traditionally strong lobbyists for refineries or ethylene plants, are no longer as enthusiastic for such mega projects after Beijing last year started to link their political careers with ensuring environmental protection rather than just economic growth.
"Now they (local authorities) have become wary of the big chemical projects," said Lu. -Reuters