Lessons learnt from Sinopec delaying Asian refinery upgrades?

17-Aug-05

Several refinery projects, planned to meet growing requirements of the Asian region, scheduled to come onstream by the end of this year have been delayed. These refineries were to ease the shortage of global capacity this year and have run into delays due to mounting losses triggered by high oil prices. India's new Essar Oil refinery has been delayed yet again, while a major new crude unit at PetroChina's Dalian plant is likely to run at reduced rates into next year after a late-2005 start. Slippage in other projects has also pushed new capacity toward the end of this year or from 2006 into 2007. Is this phenomena created by the refiners? It seems quite possible, as Chinese refiners, who, for most of 2005, have been burdened with negative margins due to restricted domestic sales prices. It seems that oil refiners in Asia, facing price control on gasoline and diesel, as well as the current weak refining margins have accumulated acute losses on domestic sales, and see minimal incentive in rushing their plans. Slower demand growth, which is estimated to come to only 6-7% in 2005, versus 15% last year, could also be one of the contributing factors for these delays. Lessons seem to be have been learnt from Sinopec's mistakes made earlier this year, with the commencement of two new naphtha crackers. Ethylene prices dipped low after Shanghai Secco Petrochemical Co. Ltd. and BASF-Yangzi Petrochemical both came onstream in the same month. Shanghai Secco, a joint venture between BP, Sinopec and Shanghai Petrochemical Co. is a 900,000 tpa cracker. BASF-Yangtze Petrochemical, a joint venture of Sinopec and Germany's BASF is a 600,000 tpyacracker at Nanjing. These delays are raising market anxiety about supplies of crude oil this winter. Asian plants, estimated as far back in January to add about 734,000 bpd of primary refining capacity, are now predicted to add only about 400,000 bpd by the end of the year.