Sinopec to delay refinery, Saudi deal in question

Sinopec Group will delay the startup of a $1.2 billion refinery in east China by at least nine months, adding uncertainties to a joint-venture and oil supply deal with Saudi Arabia, industry sources told Reuters.

Sinopec, parent of Asia's top refiner Sinopec Corp. (0386.HK: Quote, Profile , Research), aimed to start the 200,000 barrels per day (bpd) refinery in the coastal city of Qingdao around September 2008 or later, they said, versus the firm's original target of the end of this year.

A Sinopec Corp. (SNP.N: Quote, Profile , Research) official at the secretariat for the Board of Directors said on Thursday the refinery would be delayed slightly, but declined to elaborate.

The Chinese energy giant has yet to finalise a deal for state-run Saudi Aramco to take a stake in the project, or how much crude the world's top oil exporter will sell to the plant.

A delay means Aramco will have to readjust its supply plans into Asia, with China its main buyer in the region.

Riyadh was expected to take a 25 percent stake in the Qingdao plant, its second China refinery deal, and supply up to 80 percent of the plant's crude requirement.

"It's not certain now -- the deal with the Saudis," said one source familiar with the situation.

Officials at Saudi Aramco's Beijing office were not immediately available for comment.

The deferment is expected to put a damper on China's hefty crude oil imports -- growing at 11.2 percent in the first half of 2007 from a year ago -- as the world's second-largest oil user plans to raise its refining capacity by some 10 percent in 2008.

REASONS

One reason for the delay, the source said, was that Sinopec's new chairman, Su Shulin, wants to ensure the project meets tighter environmental standards as it is situated near the sailing site for the Olympics next August.

A second source, who put the delay to end-2008, linked the move to the sudden resignation in June of former chairman Chen Tonghai, an industry veteran Chinese media said was under investigation for alleged graft.

By September 2008, it would mean a stretch of more than 39 months since construction began at Qingdao, in Shandong province, in June 2005. The current stage of construction was not immediately known.

It took the Chinese firm only 22 months to complete a similar-sized refinery in the southern island of Hainan.

China is set to add about 710,000 bpd of crude refining capacity next year, some 10 percent of the country's total fuel consumption, which will boost crude imports to fresh highs and help cut back refined fuels imports.

China now imports nearly half its crude requirements.

The Qingdao plant would be Saudi Aramco's second refinery venture in China, after taking a 25 percent stake in the 240,000-bpd Fujian plant in southern China in partnership with Exxon Mobil Corp (XOM.N: Quote, Profile , Research).

Saudi Arabia, China's top oil supplier, expected to boost its crude sales significantly from the current 480,000 bpd level through these deals.