Hong Kong — PetroChina, the upstream-focused oil giant, will continue to invest in refining segment despite narrower margin, increasing overcapacity and intensive competition, a company executive said on late Thursday.
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"During the industry downturn, appropriate investment remains necessary for sustainable development," Yang Jigang, a vice president at PetroChina, said during the company's first-half result briefing in Hong Kong on Thursday.
China's demand for petrochemical products is sustainable and will recover from the downturn, he said.
Therefore, PetroChina adjusted its new refining project in southern China's Guangdong province to make it a refining and petrochemical integrated complex with 400,000 b/d capacity and focus on products that the company has leading production strength in, such as acrylonitrile butadiene styrene, or ABS, plastic, Yang said.
The Guangdong Petrochemical has been under construction since December 2018 and is expected to be completed in three years, S&P Global Platts reported earlier.
Meanwhile, the company also plans to leverage its upstream production to feed new petrochemical projects with advanced technology, Yang said.
"Such as producing ethylene by cracking ethane, a side-product with abundant supplies from natural gas fields," he added.
"PetroChina is constructing two such projects, with one having 800,000 mt/year capacity in Changqing field [in Shaanxi province], and the other with 600,000 mt/year capacity in Tarim field [in Xinjiang Uygur Autonomous Region]," he added.
PetroChina spent Yuan 5.81 billion in H1 2019 in the refining and chemicals segment, accounting for 6.1% of its total capital expenditure in the period. The company expects the budget for the segment to amount to Yuan 14.6 billion for the whole year, according to its H1 earning results.
China's refineries have seen profits slump in H1 due to overcapacity as domestic demand growth slowed down.
PetroChina's profit from its refining operations dropped 92.5% year on year in H1 to Yuan 1.38 billion, while refining giant Sinopec's earning before interest and taxes, or EBIT, for refining fell 52.8% year on year to Yuan 18.61 billion in the same period.
According to Platts' data, at least 900,000 b/d of new refining capacity is expected to come online in 2019, taking China's total refining capacity to about 17.38 million b/d. Further, more than 1.72 million b/d of capacity with investments from either state-owned or independent sector is under construction and is expected to be online in another five years.
PetroChina is the listed arm of China National Petroleum Corp, China's biggest integrated oil and gas company. Its refining capacity is the second biggest in China at 3.78 million b/d following Sinopec's 5.91 million b/d, according to the company data.
LSFO, MGO PRODUCTION
PetroChina will have eight refineries to produce low-sulfur bunker fuel oil to take advantage of the International Maritime Organization's emission regulations that will come into effect from January 1, Yang said.
"Now we already have five refineries to produce LSFO successfully, including Dalian Petrochemical and Dagang Petrochemical," he added.
Yang said PetroChina sees no need to invest heavily in its refining facilities as the domestically produced sweet crudes will serve as good feedstock to produce LSFO.
The current investment for LSFO supplies went to pipeline and storage preparation, he added.
PetroChina is targeting a 2 million mt/year LSFO-production capacity in 2019 and expects to hit 4 million mt/year next year, Platts reported earlier.
"We will optimize gasoil yield, too, if demand for marine gasoil is stronger in the future," Yang said, adding that the company had wider flexibility to adjust product yield after a series of product mix adjustment and upgrade projects.
The company's gasoil, gasoline output ratio has fallen to 1.06:1 in H1 2019 from 1.29:1 a year ago, according to the earning report. However, profit for bunkering business slumped in H1.
Chimbusco, China's leading bunker fuel supplier, registered Yuan 15 million net profit in H1, less than one fifth of the Yuan 77 million booked a year ago, despite revenue rising 2.6% year on year to Yuan 20.33 billion, according PetroChina's earning report.
The state-owned Chimbusco is equally owned by PetroChina and China COSCO Shipping Corp. Ltd.
-- Oceana Zhou, firstname.lastname@example.org
-- Edited by Kshitiz Goliya, email@example.com