In Oil & Companies News 17/10/2016
A pair of large deals in India and China underline the changing landscape of Asian oil refining, which is poised to see intensifying competition over the next several years.
In China, the government is considering a merger of Sinochem Group and ChemChina to create a US$100 billion petrochemicals conglomerate that could offer some competition to the country’s two dominant domestic oil refining giants, Sinopec and PetroChina, according to news reports there.
Meanwhile, Russia’s Rosneft and Netherlands-based Trafigura, the world’s third largest commodities trading house, have combined to buy almost all of India’s Essar Oil, a division of the billionaire Ruia family’s Essar Group. The group owns India’s second-largest refinery – a 405,000 barrels per day plant at Vadinar, in Gujarat – as well as one of the UK’s largest refineries, the 210,000 bpd former Shell plant in Stanlow.
Shashi Ruia, Essar Group’s chairman, said the sale will help the group to grow its other businesses, which range from steel to shipping.
Meanwhile the China deal, which has not been confirmed by the government nor either of the companies, has long been talked about as part of the government’s drive to liberalise the domestic market and break up the dominance of the two big players.
Sinochem has three refineries with capacity of about 480,000 barrels per day, while ChemChina’s nine facilities have the same overall capacity.
The merged group would still be dwarfed by Sinochem, which has about five times their combined capacity, while PetroChina’s refining mass is about three times the combined group’s.
Asia’s refined oil products market has became saturated after a period of rapid expansion, with China aggressively marketing its oversupply.
BMI Research, a division of Fitch Ratings, forecast diesel demand – of which China is the world’s second largest consumer after the US – will slow markedly over the next five years, to average 0.2 per cent a year versus 2.8 per cent in the five years to 2014.
“As domestic demand will prove increasingly insufficient to absorb the large quantities of diesel produced, we anticipate Chinese diesel will continue to flood the regional market,” BMI predicts. “Supply-side growth will be rampant, as despite the apparent lack of sufficient demand for the fuel domestically, Chinese refineries appear content to abide by a policy where over production is exported rather than cut.”
Meanwhile, the Indian purchase is partly driven by Russia’s efforts to deepen ties with a market that is expected to take over from China as the fastest growing for refined products in coming years. Essar itself has already taken stakes in Russian oilfields that Rosneft is developing and may buy a part of the further 20 per stake in Rosneft that the government is expected to sell to strategic investors.
The Gujarat refinery is one of the most sophisticated in the world, giving it the flexibility to handle a wide variety of crude oil grades and produce a big slate of products to meet India’s growing demand.
Source: The National
