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Is China Creating A $100 Billion Energy Giant?

Chemical plant

As China wants to reduce the number of its state-held firms, the government plans to merge chemical groups Sinochem and ChemChina to create a global oil and chemicals giant worth around US$100 billion in annual revenues, Reuters reported on Friday, citing three people in the know.

ChemChina, which goes under the official name of China National Chemicals Corporation, is expected to boost Sinochem’s oil refining business with around 500,000 barrels per day of crude oil processing capacity.

Sinochem, on the other hand, has been facing a slowdown in its overseas oil and gas business with the lower-for-longer crude prices. Its energy business has also been stagnating amid growing Chinese competition from state oil trading company Unipec and from Chinaoil.

A ChemChina spokesperson has commented on the Reuters report of a potential merger, saying “there is no such thing”.

According to one of the Reuters’ sources, a possible merger would be beneficial to both companies, as Sinochem’s upstream oil and gas would supply ChemChina’s nine refineries. In addition, the two companies would complement each other’s rubber, chemicals, agri-chemicals, and fertilizer businesses.

A merger would create a major global giant and compete with domestic rivals PetroChina, Sinopec and CNOOC, Michal Meidan, an analyst on China at Energy Aspects, told Reuters.

Regarding the domestic rivals, state-owned oil companies PetroChina and Cnooc reported in August dismal first-half results, dragged down by low oil prices and stagnant demand at home. The companies’ outlook for the near term was not very bright either.

Commenting on the possible Sinochem-ChemChina merger deal for Bloomberg, Suresh Sivanandam, a senior manager of refining research at Wood Mackenzie in Singapore, said:

“This is probably part of the government’s energy reforms to consolidate smaller players and put them head to head with the bigger state refiners.”

By Tsvetana Paraskova for Oilprice.com

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