BEIJING, Aug 28 (Reuters) - China’s North Industries Group Corp, a state-run defense conglomerate that also invests in oil and gas, may postpone a multi-billion dollar plan to build a refinery because of a capacity overhang, industry sources said.
Better known as Norinco, the state giant won final regulatory approval earlier this month for a long-mooted plan to build a refinery and petrochemical complex in northeast China, according to a document on the website of the economic planning body of Liaoning province (www.lndp.gov.cn).
Beijing has loosened its grip on a sector long dominated by the country’s top three energy giants in an effort to boost private investment as the economy cools.
The central government is allowing more independent companies to import crude oil, and relinquishing powers to approve key investments such as oil refineries to local authorities.
China has also approved the launch of a crude oil futures contract to bolster global use of the yuan and create a new pricing benchmark.
Norinco, which already operates two refineries in northeast China, wants to become a larger oil and gas player, integrating its upstream assets overseas, a dedicated trading arm and its petrochemicals business, industry officials say.
But China, the world’s No.2 crude consumer, is facing a supply glut and slower demand growth, leading dominant refiners Sinopec and PetroChina to scale back expansions.
The location of the plant in northeast China, an area with a traditional surplus of refining capacity and away from main consuming regions, would make an investment decision challenging.
“It’s unclear if the group would proceed with it any time soon. The refining sector is not that profitable,” said a senior industry source familiar with Norinco’s oil strategy.
Norinco’s spokesman couldn’t be immediately reached for comment.
The project, which includes a 300,000 barrels-per-day (bpd) refinery and a one million tonne-per-year ethylene complex is estimated to cost 92.4 billion yuan ($14.46 billion), according to a short report on Norinco’s website. A crude oil terminal able to accommodate tankers up to 300,000 tonne is also planned.
The complex would be situated in a new economic zone at the coastal city of Panjin, already home to four refineries with a combined processing capacity of over 400,000-bpd, said a second Panjin-based oil official familiar with the situations.
Huajin Group, a Norinco unit specializing in refining and petrochemicals, currently operates a 100,000-bpd refinery, a 450,000-tpy ethylene plant, and a small bitumen plant, all in Panjin.
Zhenhua Oil, Norinco’s dedicated upstream and trading arm, has investments in oil and gas blocks in Iraq, Myanmar, Syria, Kazakstan and Eqypt, according to Zhenhua’s website.
$1 = 6.3918 Chinese yuan renminbi Additional reporting by Beijing newsroom; Editing by Richard Pullin