September 08, 2010 (Reuters)

China grants clearance to Sinopec-Kuwait refinery

China has granted environmental clearance and okayed a technical review of an $8.7 billion refinery and petrochemical joint venture between Sinopec and Kuwait, paving the way for final state approval soon.

The venture, to be built in southern coastal city Zhanjiang, includes a 300,000 barrels-per-day (bpd) refinery and a 1million tonnes-per-year ethylene complex, at a cost in line with previous estimates of around $9 billion.

"With both the MEP (Ministry of Environmental Protection) clearance and the technical review, it means the project is technically ready for final approval by the NDRC," said one industry executive with direct knowledge of theKuwait venture on Wednesday. "They are both significant."

The venture will be
50-50 owned with Sinopec Group, parent of top Asian refiner Sinopec Corp, but Kuwait is likely to huntfor a second or third foreign partner for joint funding once the final Chinese approval is granted, the executive said.

OPEC member Kuwait is on the lookout for direct marketingand retail access in China, the world's fastest expanding majorfuel market which has long been dominated by oil duopoly Sinopecand PetroChina.

"Whether Kuwait can get the retail access will be thedeal-breaker in the end. It's the same problem other foreignfirms face in China," said the executive.

So far only a handful of foreign companies such as ExxonMobil and Saudi Aramco, via their $5 billion venture with Sinopec Corp in Fujian province, have direct marketing access tothe roughly 9 million bpd fuel market, the world'ssecond-largest after the United States.

For China, which now imports over half of its cruderequirements, a commitment to receive long-term oil suppliesfrom an exporter such as Kuwait is essential.

Kuwait, the world's seventh-largest crude exporter, aimseventually to export 500,000 bpd of crude to China, or doubleits target for this year.

Last year, state-run Kuwait Petroleum Corp briefly talked to potential investors Shell and Dow Chemical Co, but the firms did not make any commitment for a consortium.

The environmental clearance came after the venture wasforced to relocate last year from Nansha on the Pearl RiverDelta due to strong opposition from environmentalists andresidents.

The joint venture also committed to spend about $626million, or 7.22 percent of the total investment, onenvironmental protection, according to a statement on thewebsite of the Ministry of Environmental Protection (MEP).