PetroChina tackles Sinopec in south
Approval for Guangxi refinery helps oil firm make inroads in rival's territory
PetroChina has won the central government's approval to solely build a 15.2 billion yuan oil refinery in Guangxi province, helping the company in its challenge to rival the dominance by China Petroleum & Chemical Corp (Sinopec) in the refining industry in the southern part of the country.
This came five months after Sinopec chairman Chen Tonghai said the company was in talks to invest in the PetroChina-led project, as Beijing would not allow two companies to build two separate large-scale refineries in the economically backward region.
The project, PetroChina's first refinery in the south, may signal Beijing's intention to see greater competition in the refining industry, where PetroChina and Sinopec together control about 85 per cent of capacity but each dominate regionally.
Although almost a decade has passed since the government restructured the industry into PetroChina-led north and Sinopec-controlled south, the two oil titans have yet to make major inroads in each other's territories in the refining sector.
The two companies have already been competing against each other in the downstream fuel distribution sector.
Having a refining base in the south will enhance PetroChina's competitiveness there as it would slash the company's transport costs.
The National Development and Reform Commission had given PetroChina the approval to solely build a 10 million tonne-a-year refinery in the deepwater port of Qinzhou, the China Oil News reported.
It is the first domestic refinery to process crude oil from overseas fields invested by a mainland oil company, the commission said, adding it would help enhance national energy security and fill a void of large-scale refinery in the southwest.
State media previously reported the refinery would import crude from Sudan, which accounts for a large portion of PetroChina's overseas reserves portfolio.
The project broke ground in November last year and is due for completion next year.
Analysts said the fact that PetroChina had overseas crude supply for the refinery was a key reason for Beijing to allow it to take the lead in the project.
Sinopec, Asia's largest refiner, imports about 80 per cent of the oil it processes.
'I don't know if the NDRC had forced a decision on the two companies as to which one gets to build the Guangxi project, but it's obvious that PetroChina has an edge and that's why it was allowed to take the lead ... Sinopec naturally found it difficult to invest in a project controlled by PetroChina,' DBS Vickers analyst Gideon Lo Wai-yip said.
Sinopec earlier proposed building a refinery in Beihai in Guangxi while both PetroChina and Sinopec were jostling for the right to develop a refinery in Guangzhou.
In July last year, Sinopec got the commission's approval to build an up to 15 million tonne-a-year refinery there in co-operation with Kuwait Petroleum.
Spokesmen from PetroChina and Sinopec declined to comment.
Spurred by Beijing's policy to develop the country's remote and underdeveloped western region, economic growth has picked up and so has demand for fuel and petrochemicals.
