China Approves Refinery Planned by Kuwait National Petroleum and Sinopec

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Researched by Industrial Info Resources (Sugar Land, Texas)--Kuwait is poised to see major developments in the country's oil and petrochemical industries during the next four years. The Kuwaiti government recently announced plans to implement a $35 billion program to overhaul and further develop the oil industry, while the petrochemical industry is moving ahead with a $10 billion program to raise capacity and avoid domestic shortages.

Companies not directly involved in the programs, such as Kuwait National Petroleum Company (KNPC) (Safat, Kuwait), are turning their eyes abroad in an effort to improve domestic conditions. KNPC is hoping to secure raw materials and solid feedstock supplies, like ethylene, that Kuwait desperately needs for petrochemicals.

In September, the Chinese government granted environmental clearance to a joint-venture refinery proposed by KNPC and its partner, Sinopec (NYSE:SNP) (Beijing, China). Originally, the refinery, which was to be built in the Guangdong province of China, included Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) and Dow Chemical Company (NYSE:DOW) (Midland, Michigan). Plans were revised as Dow and Shell withdrew from the project, leaving Sinopec and KNPC, who signed an agreement last fall in a 50:50 joint venture. The agreement was announced after Sinopec had formalized plans to build oil rigs in Kuwait. Many other foreign firms have tried to break into China's retail market, but very few have succeeded. KNPC seems to be on track to gaining direct access to the booming Chinese market. Kuwait oil is essential to China, since more than half of China's crude requirements are imported and final approval of the refinery is crucial to both countries.

The new refinery, which was relocated to an island near Zhangjiang City from Nansha, is tentatively scheduled to undergo construction beginning sometime during the next first quarter. Nansha lies close to Hong Kong, and plans were changed after campaigners from Hong Kong offered strong opposition. Assuming final approval is granted, the refinery will be constructed with little to no opposition in Zhangjiang. When completed toward the end of 2013, the $9 billion refinery will handle up to 300,000 barrels of crude oil per day from Kuwait to help meet Chinese demand. An ethylene plant also will be included in the construction and will produce about 1 million tons of ethylene per year that will benefit both Kuwait and China.

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