A Landmark in Chinese Oil Refining

A Landmark in Chinese Oil RefiningThe new 240,000 barrels per day refinery in China’s Fujian Province is essentially on line, starting this week.

The deal that led to the refinery construction was signed in February 2007 and it was a landmark event, the first ever of its kind, and it joined a major Chinese oil company (Sinopec), the biggest multinational (ExxonMobil) and the biggest supplier of crude oil (Saudi Aramco). It was supposed to usher a new era in transnational oil cooperation.The refinery is in Quanzhou, in Fujian Province in the south of China. The partners were a diverse threesome but one made in oil heaven. The Chinese were getting a modern refinery they needed badly. Many of their other refineries, technologically obsolete and inefficient, were running at over 90 percent capacity. ExxonMobil, shut out of Russia and Venezuela, was eager to enter into a high-visibility project in a high-impact market. And Aramco was all too eager to play the godfather role. The deal clearly could not have been consummated had it not been for Saudi oil.In the manner that has been all too characteristic of major Chinese projects, the refinery was completed pretty much on schedule and slightly over budget. In 2007 it was announced that it would cost $3.5 billion. Eventually it cost $4.5 billion. The joke among China hands goes like this. If the Americans and the Chinese start talking about a major project today, in two years the Chinese will be done and the Americans will still be talking and applying for permits. It should not be surprising that ExxonMobil, a premier company in its field like few others in their respective fields, vilified in the green-house-gases-solar-and-wind-obsessed United States will find a lot of work in energy hungry China.The Fujian refinery will not be the last of its kind. Expansion is already under way to double its capacity within a few years.The need for new refineries in China is compelling. Only today it was announced that its oil demand increased by 12.5 percent in September from last year. This is the sixth month that oil demand has increased since last year and September’s rate of increase is the fastest since June 2006. Energy demand becomes obvious since the Chinese are again inching towards double digit economic growth.Even more telling is that also today it was announced that China’s October auto sales increased by 72 percent (!!!) from a year ago, selling 1.2 million cars. By comparison automobile sales in the United States in the same month amounted to a little over 800,000. The Chinese out-paced the US by 50%. Even for those of us that work in China and have intimate knowledge of its energy situation are stunned with these figures.

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