Growth abroad to offset losses from refining
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E-mail China Daily, March 27, 2012
China Petroleum & Chemical Corp, or Sinopec, will continue to invest overseas in unconventional natural gas and oil to boost its output and offset losses in its refining operations, a company official said on Monday.
"To invest overseas is our long-term strategy," said Chairman Fu Chengyu during an earnings conference.
Fu said the company will concentrate on oil and natural gas resources overseas, including shale oil, shale gas, and other unconventional resources.
Fu said he expects to see a rapid increase in natural gas output, mainly from unconventional sources, in the next five years.
President Wang Tianpu added that the company is also looking at investment opportunities in refining and petrochemicals, as well as warehouse and logistics operations overseas, to integrate its upstream and downstream business.
Sinopec reached an $8.5-billion deal with Saudi Aramco, the state-run oil company of Saudi Arabia, in January for a joint venture oil refinery that will open in 2014.
Fu said in a statement on Sunday that in 2012, the company will make full use of the domestic and foreign markets to boost its capability to gain resources, and it will propel natural gas development.
During his comments on Monday, he didn't specify how much would be spent overseas.
According to a report from China National Petroleum Corp, Sinopec topped the domestic oil majors to spend almost $20 billion on overseas mergers and acquisitions in 2011, despite mounting crude oil prices that eroded its profits in the refining sector.
Chinese oil companies, like their foreign counterparts, are purchasing assets in unconventional gas, especially shale gas, and in the deepwater industry, said Wu Mouyuan, an expert at the CNPC Economics & Technology Research Institute.
Sinopec, which processed 217 million metric tons of crude oil last year, reported a loss of 35.8 billion yuan ($5.7 billion) in its refining sector in 2011 as tightly controlled domestic oil product prices lagged far behind higher international crude oil prices.
Net profit fell 30 percent in the fourth quarter of 2011, though full-year net profit was up 1.4 percent at 71.7 billion yuan, Sinopec said.
"Whether the refining business will stop losing money depends on changes in the crude oil price," Fu said. "If it continues to rise, it's likely that the sector will remain in the red, though with a smaller loss."
However, recent fuel price hikes in China will help offset losses, Fu said.
Earlier this month, China raised fuel prices for the second time this year. Analysts said Sinopec will be the major beneficiary of the hike.
The frequency of fuel prices hikes this year is much quicker than in 2011, when the central government raised prices three times.
If the pace continues this year, Sinopec will undoubtedly reap much larger gains, said Liang Jianmin, an analyst with Capital Securities.
