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China Approves Kuwaiti Refinery

March 9, 2011


BEIJING—China has given final approval to Kuwait to build an oil refinery in the south of the country in a joint venture with China Petroleum & Chemical Corp., a person with firsthand knowledge of the decision said Tuesday.

China, dependent on oil imports, has been making deals with major producers to process more crude domestically.

The $9 billion project between Kuwait Petroleum Corp. and Asia’s largest refiner by capacity, also known as Sinopec, has been under negotiation for more than five years. It includes a refinery with a capacity of 300,000 barrels a day in the city of Zhanjiang in Guangdong province and an ethylene plant with a capacity of a million tons a year, along with related utilities, jetties and oil pipelines, according to previous comments from government and company officials involved in the talks.

Nelson Ching/Bloomberg NewsA Beijing refinery belonging to Sinopec, Asia’s largest refiner by capacity and partner with Kuwait Petroleum in a planned Guangdong project

“The National Development and Reform Commission has given its approval. It is the final approval needed,” the person said, without elaborating. “We will do the front-end engineering and design and then move ahead with the construction.”

This is China’s second refinery project with a major crude-oil producer in the past six months—in September 2010 Russian oil company OAO Rosneft agreed to build a 260,000-barrel-a-day refinery in Northern China in a joint venture with China National Petroleum Corp.

A plan by CNPC and Venezuela’s state-run Petróleos de Venezuela SA to build a refinery in Guangdong to process that country’s oil is awaiting a formal go-ahead.

A year ago, Saudi Basic Industries Corp., or Sabic, started commercial production at a petrochemical complex in Tianjin, China, a joint venture with Sinopec.

Kuwait is due to supply the crude oil for the Zhanjiang facility, in which Kuwait Petroleum Corp. and Sinopec will each hold a 50% stake.

Given the importance of the project, the decision was referred to China’s State Council, the country’s cabinet, about two weeks ago, the person said.

It isn’t clear whether Kuwait has obtained approval to sell some of the refinery’s output in the Chinese market through a network of Q8-branded filling stations it has said it wants to open in China. It is also unclear whether other foreign companies will join the project. KPC has previously said it planned to sell some of its 50% stake to international partners.

Officials from Sinopec and the NDRC weren’t immediately available for comment.

The project, which Kuwaiti officials have said could be operational in 2013, will push Kuwait higher up the list of China’s oil suppliers. In 2010 it was ninth, providing an average of 197,000 barrels a day of crude out of total Chinese imports of 4.8 million barrels a day. China relies on imports for around 55% of its oil needs.

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