State-controlled Chinese firm Norinco will push ahead with plans for an integrated refinery and petrochemical project in the country's northeast, despite no longer expecting investment from state-controlled Saudi Aramco.
Norinco, Aramco and local government-owned Panjin Sincen signed an agreement for the project last year, building on a 2017 framework deal that envisaged a 36:35:29 joint venture between the respective companies.
But Aramco's participation is now in doubt. "The Chinese side's understanding is that Aramco is cutting investments and does not have the funds to invest in the project currently," a Norinco official said. Aramco did not confirm whether it has withdrawn from the project.
The company was previously looking to start construction this year and bring the project on line within 3-4 years, putting the start-up date at around 2024. Norinco still hopes to start work as soon as possible, the official said. But the project's economic viability needs to be approved by the company's management, raising the prospect of delays.
Under the framework deal, Aramco was to supply up to 70pc of crude for the greenfield project, Huajin Aramco Petrochemical. The proposed complex in Panjin, Liaoning province, will include a 300,000 b/d refinery, 1.5mn t/yr ethylene cracker and 1.3mn t/yr paraxylene (PX) unit at a cost of $10bn.
Aramco was also eyeing investment in a retail fuel network as part of the deal. But Norinco and its Huajin Chemical unit, which operates the company's main 120,000 b/d refinery at Panjin, have struggled to expand their marketing footprint. The group owns just two retail fuel outlets in Panjin, meaning most of Huajin's fuel output is sold through wholesale channels.
The design and base-load crude supply for the project are unlikely to change if Aramco pulls out, but some of the Saudi crude supply may be replaced with other Mideast Gulf grades.
Aramco is in the process of finalising a 9pc investment in private-sector Rongsheng's 800,000 b/d ZPC refining and petrochemical complex at Zhoushan, Zhejiang province. ZPC intends to bring the second 400,000 b/d phase on line by the end of 2020, after the first phase started up last year.
Aramco had been targeting $500bn in global upstream and downstream investments in the next decade, including new petrochemical projects in Asia's two most important growth engines, China and India. But the impact of the Covid-19 pandemic on oil demand has forced it to reduce capital expenditure to close to $25bn this year, from a previously planned $35bn-40bn, with further significant cuts to follow. This is likely to put the brakes on some upstream projects.
Norinco's greenfield refinery project is a key part of China's goal of revitalising its northeast rustbelt. But refinery overcapacity in the region has prompted local governments to push for downstream consolidation, including merging state-controlled PetroChina's Daqing Refining and Chemical and Harbin plants.
