Cnooc Parent to Start First Oil Refinery Next Month

By Winnie Zhu

Feb. 17 (Bloomberg) -- China National Offshore Oil Corp., the country’s biggest offshore petroleum explorer, will start up its first refinery next month to meet fuel demand in the manufacturing hub of Guangdong, said two company officials.

The Beijing-based company is testing the 240,000 barrel-a- day Huizhou refinery in southern Guangdong province and the plant will begin operations in March, said the officials, who declined to be named because of internal rules. The startup was delayed from the end of last year because of market uncertainty, one of the officials said.

China National Offshore, the parent of Hong Kong-listed Cnooc Ltd., is diversifying from exploration into fuel distribution to compete with bigger rivals PetroChina Co. and China Petroleum & Chemical Corp. even as economic growth slows. The government implemented a new fuel-pricing mechanism in December to ensure refining profits.

“China National Offshore’s practice in refining will no doubt strengthen competition in fuel sales, which are dominated by the other two oil majors,” Qiu Xiaofeng, an oil analyst with China Merchants Securities Ltd., said by telephone in Shanghai. The move will mainly hurt PetroChina, which has fewer filling stations in Guangdong and relies mostly on wholesalers, Qiu said.

While economic growth in Guangdong has slowed in the last year, expansion in the province, whose exports account for 18 percent of China’s total by value, has averaged 13.8 percent a year since 1978, the South China Morning Post newspaper reported on Nov. 8.

Pricing Mechanism

China is turning into a “buyers market” for fuel products as a slowing economy erodes demand in the world’s second-largest energy-consuming nation, said China Petrochemical Corp., parent of Sinopec, as China Petroleum is known, on Dec. 25.

The government in December replaced a guidance band for retail fuel prices with a market-based ceiling that takes into account the cost of crude oil. The new pricing mechanism assures prospects for the refining business, one of the officials said. A stimulus plan for the petrochemical industry will boost business further, he said.

A stimulus plan for the oil refining and petrochemicals sector may be approved by Feb. 22, two industry officials said last week. The proposal includes tax incentives and the acceleration of project approvals and construction.

The Huizhou refinery will initially process crude from Cnooc’s oil field in Bohai Bay, an official said on Nov. 7. China National Offshore completed construction of the company’s first fuel depot in Dongguan city in Guangdong, the group said in a statement on its Web site dated Feb. 9.

China National Offshore expects to boost its oil-processing capacity to 60 million metric tons by 2020 from 12 million tons, Zhang Guoxiang, a senior engineer at the refinery, said on March 6. The group plans to build 300 retail filling stations in Guangdong to sell fuel produced by the Huizhou plant.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net.