BEIJING Plans for a $13 billion refinery and petrochemical complex in east China have stalled over finding a suitable site for the plant, which could face long-term delays, industry and government officials said.
The PetroChina-led project, in partnership with Royal Dutch Shell (RDSa.L) and Qatar Petroleum, also faces competition from petrochemicals using U.S. gas as feedstock, a change of strategy from PetroChina (0857.HK) and opposition from locals.
The project partners began feasibility studies about 14 months ago in a bid to build the 400,000 barrels per day refinery and 1.2 million tonnes (1.1023 ton) a year ethylene complex in the coastal city of Taizhou in the prosperous manufacturing hub of Zhejaing province.
It would be the single largest investment in the refining and petrochemicals sector for PetroChina, Asia's largest oil and gas producer, and a base for it to expand in south China, which is a stronghold of rival Sinopec Corp (0386.HK).
"The (Taizhou) project is on hold," said an industry official with direct knowledge of the project status, pointing to the need for a massive landfill project.
Finding a suitable site strong enough to erect the massive plant has become a major headache for the partners.
Taizhou authorities have proposed filling in an area that encompasses six mini isles, but the work would cost about 10 billion ($1.6 billion) yuan, about an eighth of the total project cost, said a Chinese executive involved in this landfill project.
A local official told Reuters that the partners had failed to come to a site decision after nearly two years of research and surveying land.
"The best land has long been taken by companies like Sinopec...If (companies) are keen to capture the local market, they will need to pay a higher price now than before," said the official.
Last month, a senior Zhejiang provincial official urged investors to decide on the site selection as soon as possible, according to a report on the provincial government's website.
Industry veterans said a delay on the project might fit a change in strategy by PetroChina to scale down on downstream businesses, where it has less experience and which face economic challenges.
The project is designed to feed on Qatar's abundant condensate, a light crude ideal for making petrochemicals, but the U.S. gas-based petrochemicals could be a tough competition.
"A more likely reason for delay might be economics, which have become less favorable for such an investment," said an industry veteran who was involved in negotiating a similar project with Sinopec.
PetroChina is expected to hold a 51 percent stake in the proposed plant, while Shell and Qatar Petroleum would each hold 24.5 percent.
Hit by scandal with five of its top executives put under corruption probe, PetroChina's new management has vowed to focus on quality rather than scale, having cut spending sharply on refining and petrochemical business in the first half of 2013.
The Taizhou project also faces resistance from local residents concerned about worsening pollution.
The Telegraph newspaper earlier reported that plans for the plant had been shelved after it had lost political support.
A Shell spokesperson said the project's feasibility is still ongoing, while a PetroChina investment relation official said he had no information on the project's progress.
"We hope PetroChina's determination to use Taizhou as a base for its south China strategy is unshaken. Zhejiang province is great market and all its products can be consumed locally," said the local official.
(This story has been refiled to add dateline, no change to text)
(Additional reporting by Richa Naidu in Bangalore; Editing by Richard Pullin)