UPDATE 2-Third China refinery set to delay start-up to 2009

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By Jim Bai

BEIJING, Oct 10 (Reuters) - PetroChina (0857.HK) is likely to delay the commissioning of a new unit that would double capacity at a Western refinery, the third Chinese project to get pushed into next year, when extra fuel could run into weakening demand.

The 100,000 barrel per day crude distillation unit at the Chinese oil giant's Dushanzi refinery in the western province of Xinjiang was originally meant to be operational early this year. Dushanzi's 1 million tonne-per-year ethylene project, also due for completion this year, had already been pushed back to 2009.

"Both the new refinery and ethylene cracker are expected to be operational next year," a company source said on Friday.

PetroChina's smaller rival CNOOC has already postponed its 240,000-bpd Huizhou refinery until next year.

Sinopec Group announced this week that it expected to start operations at a major new unit at its Fujian refinery on a trial basis in the first quarter, a quarter later than company officials had initially hoped. [ID:nPEK75260]

While the delays threaten to constrain China's refining capacity in the short term, traders say there appears little risk of a shortage of domestic fuel as inventories remain toppy following pre-Olympic stockbuild and smaller-scale teapot refineries are filling the gap now that prices have fallen.

The greater risk may be a flush of new supplies hitting the market early next year, when the impact of a global economic slowdown or recession could cut deep into fuel demand.

URGENCY EASES

Work on the new unit began in late 2005, with an expected cost of $3.2 billion. Since the project began, China has been rushing to supply its thirsty fuel market, with the government urging oil companies to bring new facilities on stream quickly.

But in recent weeks China has begun to feel the effect of the global financial crisis and domestic fuel demand has slowed. China has halted imports of auto fuel in September and October as bulging inventories proved ample to supply the slowing economy.

Crude oil imports from Kazakhstan were 9.56 percent lower in the first eight months of this year than the same months of 2007, even though China's total imports increased 8.68 percent, data from China's customs department showed.

The 600-mile (966 km) pipeline running from Atasu in Kazakhstan to Alashankou at the Chinese border is the main energy artery from Central Asia to China, although there are plans to expand it and build more oil and gas pipelines.

With Russia yet to finish its landmark East Siberia pipeline to China, the Kazakh route has also served as a conduit for Russian crude oil to China, as well as Kazakh crude.

Gazprom Neft (SIBN.MM), the oil unit of Russian gas monopoly Gazprom (GAZP.MM), and TNK-BP (TNBPI.RTS), a joint venture of BP Plc (BP.L), have both exported to China via the Atasu-Alashankou pipeline and have said they want to send more down the route.