The country's biggest oil refiner Sinopec got the government's go-ahead to build a US$3.1-billion petrochemical complex in North China's port city of Tianjin.
"We received the approval from the State Council on December 21," an official responsible for Sinopec's corporate planning said yesterday, declining to be named.
The Tianjin project, to be completed by 2008, includes a 1 million ton per year ethylene cracker, a refinery able to process 12.5 million tons of crude oil a year, and other facilities to produce petrochemical products such as polyethylene and polypropylene.
Total investment of the project is expected to exceed 25 billion yuan (US$3.1 billion), which will be wholly owned by Sinopec, said an unnamed official from the Tianjin Municipal Development and Reform Commission.
Sinopec officials yesterday refused to further comment on the investment. Zhang Dongsheng, a director in charge of petrochemical projects at the local industrial investment planner, said construction of the new complex is projected to start in the first half of this year, but "it is difficult to predict which month."
Industry analysts say the big capacity of Tianjin port will facilitate the new petrochemical complex to import crude oil and ship its products to markets.
The Tianjin port handled 240 million tons of commodities last year, among the world's top ten ports.
The huge market potential in China's petrochemical sector is attracting both domestic and foreign oil majors including BP, Royal Dutch Shell and Saudi Aramco, to scale up investment in the country.
China in 2004 consumed 16 million tons of ethylene which is widely used in the production of everyday articles from liquid soaps to car components. Domestic production of the petrochemical product stood at 6.27 million tons for the same period, meaning China relies on imports for more than half of its ethylene consumption.
"The current ethylene production facilities under construction are far from enough to meet demand," said Hou Jixiong, a senior oil and gas analyst with Beijing-based Guotai Jun'an Securities Co Ltd.
To cash in on the market, Sinopec's domestic rival PetroChina is also talking with Tianjing city to build a similar-sized petrochemical complex including refining and ethylene production facilities near Sinopec's plant, said Zhang from the Tianjin Development and Reform Commission.
"The talks with PetroChina are still at the very preliminary stage and we can not foresee a timetable to start building another petrochemical complex here," he said.
In the southeastern areas of the country, more refining and petrochemical plants are under way.
The intense investments into the petrochemical sector, however, have also triggered concerns among some market observers that risks still exist for these large-scale capital injections. "A good government censorship and regulation is necessary in the new petrochemical investment, especially when the crude oil prices are high while the domestic prices for refined oil are still capped by the government," said He Jun, a senior analyst with Beijing Anbound Consulting Co.