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Energy

RPT-UPDATE 2-PetroChina delays refinery, petchem unit to end '08

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BEIJING, Jan 3 (Reuters) - PetroChina 0857.HK will defer the start-up of a new 100,000 barrels per day (bpd) refinery in China's remote northwest by almost a year to late 2008 due to building problems, two company sources said on Thursday.

The delay means the world’s second-largest oil consumer will have to depend on new refining capacity being added on the east coast to feed its growing demand for fuel this year, even as global oil prices hover near $100 a barrel.

“It is hugely difficult to build a new refinery out of the Gobi Desert. We have pushed it back by about a year,” a company source told Reuters by telephone from Dushanzi city in Xinjiang region, near the Kazakhstan border.

PetroChina now aims to start operating the new refinery in the fourth quarter of this year from an original schedule of early 2008, a second company official said.

The company will also push back a 1 million tonnes per year ethylene project to 2009 from an earlier plan of 2008, the sources said, without giving details on the new timeline for start-up.

A PetroChina spokesman in Beijing said he had no knowledge about the development.

The new facility is designed to process crude from China’s central Asian neighbour Kazakhstan through a pipeline.

The first source said crude supply from Kazakhstan, which makes up 4 percent of China’s total imports, was not a problem, but that building the plant, including utilities, in a hostile desert environment, was a big challenge.

EXTREME TERRAIN

Weather conditions are extreme in the Dushanzi area, where no work was possible for at least four months in a year with temperatures plummetting to as low as minus 40 Celsius, industry officials said.

Deliveries of some equipment were also delayed, the Dushanzi official added.

The plant bought key technologies for its hydrocracking and reforming facilities from U.S. firm UOP LLC, a unit of Honeywell International Inc HON.N. But almost all other facilities are made in China, where manufacturers, similar to the global refining sector, struggle to deliver orders in time due to overwhelming demand.

PetroChina started work on the Dushanzi facility around end-2005 to double the refinery’s capacity to 200,000 bpd and to add a petrochemical complex at a then total estimated cost of $3.2 billion, the major’s largest project in many years.

China is projected to log a near 6 percent rise in total oil demand this year, the International Energy Agency has forecast, as the world’s fourth-largest economy is poised for another year of double-digit growth.

Three major refineries with a combined capacity of 600,000 bpd -- two owned by Sinopec Corp 0386.HK600028.SS and a third by China National Offshore Oil Co (CNOOC) -- will come on line in the latter half of the year, to boost fuel supply to the Chinese market which suffered a serious shortage in late 2007.

Dushanzi refinery currently operates a separate 100,000-bpd plant, set to process at near full rates this year, sources said. (Editing by Ramthan Hussain) (aizhu.chen@reuters.com; Reuters Messaging: aizhu.chen.reuters.com@reuters.net; +8610 6627 1211)

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