Page 5 - FSUOGM Week 33 2021

FSUOGM COMMENTARY FSUOGM
Beyond transportation projects, Chinese investors are also entering Russian downstream projects that can export their output across the border.
Downstream investment
China Railway Construction Corp. (CRCC) signed a RUB6.95bn ($94.4mn) contract with Russia’s Irkutsk Oil earlier this month for the first phase of construction at a petrochemical project in Siberia.
The project, CRCC’s first such development in Siberia, comprises the development of an office complex and a logistics park for the planned 650,000 tonne per year polyethylene plant, China’s official newswire Xinhua reported on August 13. Once the plant is completed it will export its output to China as well as Commonwealth of Independent States (CIS) member countries.
In December 2020, Chinese refining giant Sinopec won the Russian government’s approval to participate in the $11bn Amur Gas Chemical Complex, which is expected to produce 2.3mn tpy of polyethylene and 400,000 tpy of polypro- pylene from 2024-2025. The approval paved the way for Asia’s largest refiner to take a 40% stake in the complex, which will target the Chinese market.
State-run Sinopec, alongside China’s other downstream players, are beginning to pivot away from investments in motor fuel production and towards petrochemicals production as China strives to reach carbon neutrality by 2060.
The refiner has said that while Chinese oil product demand will likely peak by 2025, the country’s crude runs will continue expanding on the back of rising petrochemical demand. China may have laid plans that could see new energy vehicles’ (NEVs) share of the country’s new car
market rise from 5% at present to 50% by 2035, but replacing fossil fuel-derived petrochemicals is a much greater challenge.
Indeed, McKinsey Energy Insights has pre- dicted that the global petrochemicals sector will be the most important growth driver for the world’s oil demand between 2020 and 2030.
What next
China imported 41.24mn tonnes (9.75mn barrels per day) of oil in July, down from the 51.29mn tonnes (12.13mn bpd) it received in July 2020.
The slump in demand has been attributed to mounting inventories, rising international oil prices and the Chinese government’s crackdown in April on independent refiners’ illicit trading of crude import quotas. Beijing slashed the private sector’s quotas for the second half of this year by 35%.
This inevitably led to a slide in premiums for sales of spot cargoes of Russian ESPO crude, given that the blend is favourite among Chi- na’s teapot refineries. Russia’s Surgutneftegaz has sold three cargoes of ESPO at premiums of $1.80-2.20 per barrel to Dubai, Reuters reported on August 16, noting that these were the lowest premiums in four months.
However, the market is experiencing a self-correction after a turbulent 2020 that saw China’s imports skyrocket. Chinese oil and gas demand growth is set to remain strong in the coming years, which will deepen the country’s dependence on foreign supplies of oil and gas.
As such, the security risk connected to Chi- na’s maritime oil and gas imports will continue to drive Beijing’s energy planners to seek out new opportunities in neighbouring countries when- ever possible.™
Week 33 18•August•2021 w w w . N E W S B A S E . c o m P5