Monday, April 29, 2024

 

Sinopec Challenges India's Energy Influence with New Sri Lanka Refinery

  • Sinopec is set to complete a feasibility study in June to build one or two refineries in Sri Lanka as China looks to capitalize on its foreign investments.

  • The refinery project in Sri Lanka is a move by the top Chinese and global refiner to secure more markets overseas.

  • Sinopec and China will have to compete with India, which has also set sights on boosting its energy relations and infrastructure links with Sri Lanka.

The world’s biggest refiner, China Petroleum & Chemical Corporation, or Sinopec, is accelerating plans to build its first fully-owned refinery outside China.   

Sinopec is set to complete a feasibility study in June to build one or two refineries in Sri Lanka as China looks to capitalize on its foreign investments. China Merchants Port Holdings has developed and operates the Hambantota port in Sri Lanka, an island very close to India.

Both China and India are vying to boost their energy presence in Sri Lanka to deliver fuel to the country, which has only one refinery built in the 1960s by Iran, capable of processing about 38,000 barrels per day (bpd).

Sinopec is now close to completing its feasibility study on whether to build a 160,000-bpd refinery or two 100,000-bpd facilities at the China-run Hambantota port, senior industry sources told Reuters this week. 

The project in Sri Lanka is considered a top priority at Sinopec, according to the sources.

At the end of 2023, Sri Lanka’s government approved a contract to Sinopec to enter into an agreement to establish a new Petroleum Refinery and Associated Product Processing center in Hambantota, Sri Lanka’s Minister of Power and Energy, Kanchana Wijesekera, said at the time.

Last month, Sinopec officials discussed the proposed new refinery and indicated that the Chinese giant had decided to double the capacity of the refinery from the original proposal and the investment. The Chinese firm intends to sign the agreements for the project and commence work by June 2024, the Sri Lankan energy minister said. Sinopec has discussed issues regarding water supply, power supply, and land allocation for the new refinery with the relevant authorities.Related: Oil Prices Are Set for a Weekly Gain as Yellen Sees Inflation Falling

The refinery project in Sri Lanka is a move by the top Chinese and global refiner to secure more markets overseas.

Another major priority for Sinopec is a planned expansion of the Yanbu refinery with a petrochemicals complex in Saudi Arabia, where joint venture partners Sinopec, Saudi Aramco, and SABIC are exploring the idea of adding a new petrochemical complex to be integrated with the existing refinery.

If Sinopec’s project in Sri Lanka goes through, it would be the first fully-owned refinery of the refining giant abroad.

Sinopec already signed last year an agreement with the Board of Investment of Sri Lanka (BOI) to operate and set up fuel stations for distribution in Sri Lanka. The Chinese giant has invested $100 million in the project, which includes the import, storage, and sales of fuel.

Sinopec and China will have to compete with India, which has also set sights on boosting its energy relations and infrastructure links with Sri Lanka.

In February 2024, Sri Lanka’s Energy Minister Wijesekera discussed with executives of state-owned Indian Oil Corp (IOC) a proposal by the Indian Government through IOC for a multi-product oil pipeline connecting Nagapattinam in India with the Trincomalee Tank Farm on Sri Lanka’s east coast and Colombo.

Technical studies, demand market analyses, financial analyses, and business models will be carried out to decide on the mechanism of a potential product pipeline, the minister noted.

India and Sri Lanka have made significant progress on the discussions and are looking to make an official arrangement or agreement on a potential pipeline “as soon as possible,” an anonymous Indian official directly aware of the talks told Reuters.

India is also involved in the construction of renewable energy plants, including a planned solar park, Sampur Ground Mount Solar Project, developed by a joint venture between NTPC of India and Sri Lanka. The project has progressed to the request for proposal (RFP) stage, and negotiations will begin for the power purchase agreement for the first phase of 50 MW of the 120 MW solar park once the RFP is evaluated.

By Tsvetana Paraskova for Oilprice.com

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