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Tianjin Disaster A Wake Up Call For Chinese Petrochemical Industry

Tianjin Disaster A Wake Up Call For Chinese Petrochemical Industry

The Tianjin explosions that took place just before midnight last Wednesday, 12th August, have shaken the entire world and have exposed China’s inadequate and lax safety standards. There has been a massive public outcry against the explosions that were so intense that they shattered windows miles away from the site of the blasts.

The massive explosions occurred at a warehouse that was full of hazardous chemicals. Many consider this a disaster that was waiting to happen in China. The explosions have, so far, killed more than 100 people while around 1,000 have been injured. With a population of around 7 million, Tianjin is the fourth biggest city in China and is located approximately 100 kilometers from Beijing.

With growth of 9.4 percent, Tianjin has been the third fastest growing region in China recently. The largest port in Northern China, Tianjin is also a major petrochemical and a refining base, the petrochemical sector contributing to more than 30 percent of Tianjin’s economic growth. So, what is the impact of this disaster on China’s petrochemical industry? Related: A Key Tool For Energy Investors

What petrochemical companies were involved in the incident?

The Tianjin explosions were not the first of their kind in China. There have been a series of industrial accidents, which include five chemical explosions since April this year.

“China's growth in the chemicals industry has been extremely rapid in the last 15 years or so. It's grown from being a major importer to being a major producer of almost every single petrochemical you can think of. There are producers who are known to cut corners, in terms of regulation. There are very blatant examples of people constructing plants and almost getting into production even before the whole project has been approved. If you're to go into the U.S. -- the U.S. doesn't allow a single pile to be driven into the ground unless all the environmental regulations have been met and you have to have approvals for everything”, said Ashish Pujari of IHS Chemicals Singapore.

Does this mean that the free trade zone authorities at Tianjin have increased their petrochemicals capacity without putting a well-planned disaster prevention strategy and safety regulations in place? The latest disaster clearly suggests that. So far, only one company called Rui Hai International Logistics has been involved in the incident. The company specializes in storing, distributing and custom clearing of hazardous chemicals. At least one executive at a “relevant company” has been detained. Related: How Much Pressure Will Iran Put On Oil Prices?

What damage was caused?

A report from Associated Press revealed that Rui Hai International Logistics was storing close to 3,000 tons of hazardous chemicals which included ammonium nitrate, sodium nitrate and sodium cyanide – a compound which produces lethal hydrogen cyanide gas when exposed to water. There are even fears that toxic gas might have mixed with the air.

While the first explosion had the intensity that was equal to 3 tons of TNT, the second explosion was more massive and had an intensity of 21 tons. "I saw huge chunks of metal that had been stripped from shipping containers and had been flung over the highway. They had flown 500 meters to land jutting out of the ground," said Fergus Ryan of the Guardian. The explosions have even made petrochemical companies divert their traffic to nearby ports resulting in the loss of trade for this month, at least, for the city. Related: Low Oil Prices And China Pull The Rug From Under Latin America

What effect does this have on Chinese demand for oil and gas?

It might be possible that there would be a tightening up of trade policies in the Tianjin Free trade zone in addition to punishing those directly responsible for the incident. However, there wouldn’t be much effect on overall Chinese demand for oil and gas which has witnessed a slowdown in the last few months regardless.

Tianjin is strategically located near to Beijing and is a port city with a well-developed transport network. “I don't think this incident will affect the development of the zone. Painful lessons will be learned that will lead to better safety standards," said Sion Seng of Singamas Container holding. China’s President Xi Jinping has asked that the authorities need to learn from the “extremely profound” lessons after this incident. It remains to be seen how badly this incident has damaged the reputation of the Chinese authorities in terms of its safety regulations and disaster management plans.

By Gaurav Agnihotri for Oilprice.com

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