Shanghai Petro eyes ethylene, refining expansion

Shanghai Petrochemical, China's largest integrated chemicals firm, plans to expand its refinery and add 450,000 tonnes of ethylene capacity if Beijing gives it the go-ahead, the firm's head said on Friday.

President Rong Guangdao said the company expects to process around 10 million tonnes of crude this year, up from 9 million in 2007, and beat a previous record of nearly 970,000 tonnes for ethylene capacity after finishing maintenance last year.

It will also add an extra 2 million tonnes of crude processing capacity by 2009, and hopes to run at full 12 million tonnes capacity by 2010, he added.

"Supply and demand of fuels in our country is more or less balanced, but there are shortages of petrochemicals," Rong told reporters on the sidelines of the annual session of National People's Congress, China's parliament, where he is a delegate.

"So we are focused on expanding this output, but to do this you also have to expand your refining capacity."

They are waiting for central government approval to upgrade an old 150,000 tonne capacity ethylene unit to 600,000 tonnes, which it expects to cost less than 10 billion yuan.

Once work starts on the project, which already has the green light from China's environment watchdog, it should be completed within two years, Rong said.

He also expects to spend some 3 billion yuan on upgrading and replacing petrochemical equipment this year -- well above the average annual spend of 2 billion yuan he estimates is needed to keep up in the fast-moving industry.

Less than half the refinery output is sold as fuel, with most going into a network of downstream plants that provide more reliable margins than diesel and gasoline, prices for which are state-set and currently stuck far below international levels.

CRUDE PRICES DRAG

With global crude markets already over $100 a barrel, Rong said the company's January forecast for average 2008 oil prices of $75 to $80 a barrel might no longer hold.

Shanghai Petrochemical is offsetting some of the price rises by buying cheaper, lower grade oil but does not want to invest large amounts to make the refinery able to run exclusively on the more difficult to handle crude.

However, he was optimistic that despite Beijing's fears over inflation and a short-term price freeze, the government would this year either reform the mechanism used to set prices, or at least provide some relief in the form of a pump price rise.

"I think that they will adjust prices this year if crude markets don't fall back," Rong said.

"I don't think you should use oil prices to try and control inflation, because unlike in some other countries the majority of spending on oil is not done by individuals but by companies and the government," he added.

The largest subsidiary of top Asian oil refiner Sinopec Corp., the company said in January that net profit rose over 50 percent last year, despite soaring refining costs, particularly in the fourth quarter.