Sinopec to spend big on refining and chemicals at Beijing’s behest
China Petroleum & Chemical (Sinopec), the world’s second largest oil refiner and a major producer, has budgeted for a 63 per cent increase in spending on oil refineries and petrochemical plants to conform with a national policy to bolster competitiveness.
“Our spending on refining and petrochemical facilities aims to increase the industry’s concentration, upgrade product quality, extend the supply chain and value of products,” chairman Wang Yupu told reporters on Monday.
The energy giant has budgeted a 59 per cent increase in spending on refineries construction and upgrades to 22.8 billion yuan (US$3.3 billion), and 71 per cent more for downstream chemical plants to 15.1 billion yuan.
The combined 37.9 billion yuan outlay forms part of it plan to spend 200 billion yuan between last year and 2020 to form four “world-class” integrated refining and chemical production bases in Shanghai, Nanjing, Zhenhai in Zhejiang province, and Maoming and Zhanjiang in western Guangdong province.
Vice chairman Dai Houliang said the overall refining and chemical capacity of the company will be maintained, amid industry-wide over-capacity.
Sinopec aims to achieve this by shuttering old, small and uncompetitive plants, which will be offset by new capacity from a giant up and downstream integrated complex to be built in Guangdong in a joint venture with Kuwait Petroleum, and other facilities to be constructed in Fujian and Hainan.
“We will follow the national restructuring policy for the refining and petrochemical sector, which aims to increase industry concentration and upgrade competitiveness,” Dai said.
On Sunday Sinopec reported a 43.6 per cent rise in net profit to 46.7 billion yuan, higher than the 41.3 billion yuan average estimate of 21 analysts polled by Thomson Reuters.
The better than expected result was helped by a 20.6 billion yuan gas pipeline divestment accounting gain, mostly offset by 17 billion yuan worth of asset impairments, Sanford Bernstein senior analyst Neil Beveridge wrote in a note.
Excluding one-off non-operating gains and losses, net profit edged up 2.8 per cent to 29.7 billion yuan, according to Sinopec.
Sinopec said it expected to post a 150 per cent year on year net profit jump for this year’s first three months, from 6.2 billion yuan in the year-earlier quarter.
Higher oil prices have stemmed its oil production losses, while downstream fuel and chemical profits rose as demand was sustained despite higher prices, the company added.
Beijing’s policy to keep fuel prices stable when oil prices dived below US$40 a barrel in the first quarter of last year has boosted refining profits at the state oil giants, which suffered huge losses on oil production.
“But with regulated refining [profit] margins close to an all-time high [of US$9.6 a barrel last year], we suspect earnings momentum may be peaking,” Beveridge said.
Sinopec shares rose as much as 2.4 per cent on Monday after the results and after it raised last year’s dividend payout ratio to 65 per cent of net profit from 50 per cent in the previous two years. The shares closed just 0.2 per cent higher at HK$6.21. The Hang Seng Index fell 0.7 per cent.
Sinopec aims for crude oil output to fall 3.1 per cent this year to 294 million barrels after a 13.2 per cent decline last year, after oil and gas drilling spending was slashed by 41 per cent in 2016.
It plans to raise spending – mainly on exploration and resource development – by 57 per cent to 50 billion yuan.
Sinopec has set an ambitious gas output growth target of 15 per cent to 25 billion cubic metres for this year, after missing last year’s curtailed target by 5.4 per cent.
Dai said the missed target was due to a glut of imports via pipelines and vessels that forced Chinese producers to cut back on output, despite Sinopec having completed a 5 bcm-a-year expansion of its shale gas field construction in Sichuan province.
Its annual output capacity had already been raised to 7 bcm by the end of last year, and will be further increased to 10 bcm by the end of this year.
Dai said Sinopec is still optimistic that China’s gas demand growth will rise given Beijing’s resolve to contain its major cities’ chronic air pollution problem.
Sinopec aims to raise gas output and sales to 40 bcm in 2020, and this year will start building a gas pipeline linking its gas fields in Sichuan and Shaoguan in Guangdong to capture the growth.
Meanwhile, Dai said the company’s proposed project to turn coal in northwest China into natural gas to be sent to Guangdong and Zhejiang provinces has not received Beijing’s approval as the environmental and economic viability of the extraction and conversion of a huge amount of coal has yet to be established.