PetroChina, the nation's largest oil and gas producer, plans to upgrade oil refining and petrochemical production bases in Fushun and Dalian in the northeast, and Lanzhou and Dushanzi in the northwest.

Each of the four bases is designed for an annual capacity of at least 10 million tons of crude refining to meet surging demand, PetroChina said.

"PetroChina will speed up the development of the refining and petrochemical businesses within the next five to 10 years to meet the soaring demand in the domestic market as the economy booms," Wu Guanjing, director-general of the Hong Kong-listed oil company's refining and chemical research and development centre, told a cross-Straits petrochemical co-operation conference Monday in Beijing.

The refining bases will be established through technical and equipment upgrading of existing refineries in the four places, Wu said.

On the petrochemical front, several ethylene plants each with an annual output of 1 million tons, will be set up by PetroChina across the country.

Wu said the company would double its capacity in ethylene and synthetic resin production by 2010.

PetroChina produced 941,000 tons of ethylene in the first half of this year, an increase of 2 per cent year on year, and its synthetic resin output for the same period grew 1 per cent to 1.31 million tons.

Construction of the Dushanzi refining and petrochemical bases in Northwest China's Xinjiang Autonomous Region has already started, and is scheduled to begin operation by 2008 as the largest petrochemical facility in the northwestern region.

Infrastructure construction of PetroChina's other refining and petrochemical production bases will also begin within the end of this year, said Wu, who did not elaborate on the investment.

The booming market has pushed the country's oil majors including PetroChina and China National Offshore Oil Corp (CNOOC) to scale up their refining business, although the sector is still suffering from the government's capped refined oil prices even as global crude prices soar.

CNOOC last week said it would invest some 17 billon yuan (US$2.1 billion) to build a 12-million-ton-per-annum refinery in Guangdong Province, which will become operational by 2008.

PetroChina sources predict the country, the world's second-largest energy consumer after the Untied States, is expected to see consumption of refined oil double to at 256 million tons.

China processed 273 million tons of crude oil last year, and consumption stood at 163.8 million tons.

Last year, the country produced over 6.26 million tons of ethylene, of which PetroChina and Sinopec contributed 97.4 per cent, but it still relied on imports for 60 per cent of domestic demand for ethylene products.

Sinopec performance

Beijing-based Sinopec told the Hong Kong stock exchange that its net profit for the first half rose 20 per cent to 18.04 billion yuan (US$2.2 billion) compared to 15.04 billion yuan a year ago.

The profit growth was largely due to higher oil prices as output grew only 0.62 percent in the first half.

Operating profit in the oil and gas exploitation sector grew 69 per cent to 17.8 billion yuan (US$2.1 billion) in the six-month period, the refiner said in a statement Monday.

Its average oil selling prices jumped more than 33 per cent to US$39.40 per barrel in the first half.

But high crude prices eroded profit margins in the company's refinery division which had an operating loss of 1.3 billion yuan (US$160.3 million) from January to June, compared with an income of 4.3 billion yuan (US$530 million) a year earlier.

"We are suffering from squeezed margins in the refining business, and have great pressures in expanding capacity since we are making no money in the sector," Cao Xianghong, senior vice-president of Sinopec, told China Daily on the sidelines of Monday's conference.

Reforms in the refined-oil pricing system reform are aimed to close the gap with world crude prices, which is imperative, Cao said.

Sinopec shares slid 2.158 per cent Monday in Hong Kong to HK$3.40 (43.6 US cents) while and the blue-chip Hang Seng Index fell 0.97 per cent, to 14836.97.

Source: China Daily