CNPC, Malaysia firm near deal on fuel purchase
China National Petroleum Corp (CNPC) today is scheduled to sign a multibillion-dollar, 20-year deal to buy fuel from what is expected to be Malaysia's largest oil refinery, part of an effort to enhance energy security and hedge domestic fuel price risks, sources said.
The mainland's largest oil and gas producer is also in talks to buy a stake in the planned US$10 billion refinery that is being developed by privately owned Merapoh.
Building of the refinery in Kedah, northwest Malaysia, is to begin later this year and be completed by 2013. It will have a daily processing capacity of 350,000 barrels of crude oil.
CNPC in late 2007 signed a memorandum of understanding to buy all of the Malaysian unit's output of refined products including petrol, diesel and kerosene. At the time, Merapoh estimated the deal would be worth US$6 billion a year.
Merapoh said in a media advisory on today's signing ceremony in Malaysia that the project would be funded by local and international financial institutions in addition to investors from China, Dow Jones reported.
A Merapoh source yesterday said the agreement to be signed today would include CNPC's commitment to buy fuel but not an investment in the refinery. 'They are still in talks on CNPC's wish to take a stake in the refinery, but no deal has been sealed,' the source said.
A CNPC spokesman could not be reached yesterday for comment.
News of CNPC's signing of the deal came after listed unit PetroChina obtained approval from Beijing on Friday to take a 49 per cent stake in Nippon Oil's refinery in Osaka, which has a capacity to process 115,000 barrels of crude oil per day.
Last month, PetroChina reportedly expressed interest in buying a stake in Scotland's sole refinery from a heavily indebted British chemical company as the oil giant continues to look for discounted overseas assets.
In late May, it agreed to pay about US$1 billion for a 45.51 per cent stake in Singapore Petroleum, which has daily crude processing capacity of 285,000 barrels.
PetroChina also has pipeline and storage facilities and stakes in oilfields in Australia, Cambodia, Indonesia and Vietnam.
Mirae Asset Securities regional energy analyst Gordon Kwan said CNPC's move in Malaysia was to hedge the risk that Beijing would exercise price controls on domestic fuel should oil prices soar again.
CNPC was compensated last year for losses incurred in importing refined fuel to satisfy domestic demand, but not for its domestic losses.
Last year, mainland refiners incurred huge refining losses amid record crude prices. Refining margins have returned to normal levels after crude prices plunged.
CNPC is also in a good position in its talks for a stake.
'Since the region's refining capacity growth exceeds demand growth, Japan and South Korea are keen to refine oil for China, while China's demand is key to the Malaysian project's viability,' Mr Kwan said.
Mainland state oil firms have been aggressively buying oil and gas exploration, production and refining assets abroad recently amid relatively low energy prices.
China Petrochemical Corp, the parent of listed Sinopec, offered to pay US$7.2 billion for all of Addax Petroleum, which has exploration and production assets in Africa and Iraq.
Hedging risk
Merapoh estimated in late 2007 that the deal would be worth, in US$ a year: $6b
