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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Kuwait Invests in China Petrochemical Joint Venture

While Western commentators increasingly report on both European Union and U.S. interest in possible Chinese loans to help revive their moribund economies, little is heard from either political entity about entreating the Middle East’s petrochemical plutocracies for fiscal assistance.
An interesting example of Gulf petro-states shying away from the West and investing in the East occured on 18 November. In a petrochemical industrial park on Donghai Island in China’s port city of Zhanjiang in southern Guangdong province, ground was broken on a $9.3 billion joint venture petrochemical project between Sinopec, Asia's largest refiner, and Kuwait Petroleum Corp.
Under terms of the joint venture, Sinopec and Kuwait Petroleum Corp. own equal shares of the project. According to a statement released by Sinopec, the facility will include a refinery with an annual capacity to refine 15 million tons (300,000 barrels per day) and an ethylene plant with an annual 1 million ton capacity, with a complex scheduled to come online in 2015. The Zhanjiang complex is one of the largest Chinese joint venture petrochemical projects with foreign companies and the largest joint venture enterprise between China and Kuwait.
In March China’s top planning agency, the National Development and Reform Commission, approved the project following years of talks. At the ground-breaking ceremony Kuwaiti Consul General in Guangzhou Abdulwahab al Sager said, "The project is a major pillar that helps spur investments, trade, and the oil industry between the two countries. At the ceremony, leaders across the province have expressed happiness in realizing their dream to start this important project, which is vital in the field of energy, and have also shown interest in future cooperation with Kuwait in other mutually-beneficial projects." Sinopec President Wang Tianpu, Guangdong Party Secretary Wang Yang, Kuwait Petroleum International Business Development Director Meshari al Mahmoud and Kuwait Petroleum International Beijing Office Coordinator Khalifa al Qallaf also attended the ceremony.
Kuwait will supply all the crude feedstock for the integrated complex. Unlike many aging Chinese refineries dating back to the country’s earlier industrialization efforts, the Zhanjiang refinery will churn out gasoline meeting the Euro V emission standard and diesel at the Euro IV standard.
Why would the tiny Gulf Emirate look eastwards? Well, Kuwait was the first Gulf Cooperation Council (GCC) nation to forge diplomatic ties with China in 1971.
And soaring trade ties don’t hurt.
Last month Kuwait's crude oil exports to China surged 50.2 percent over the October 2010 rate to 1.28 million tons, equivalent to around 302,000 barrels per day to 6.1 percent of China's total crude oil imports, as opposed to the October 2010 of 5.1 percent according to the Chinese government’s General Administration of Customs most recent official data.
Put another way, Kuwait’s current oil exports to China would neatly fill the requirements of the Sinopec-Kuwait Petroleum Corp. Zhanjiang refinery complex. China's overall imports of crude oil in October rose 26.9 percent year on year.
In October Kuwaiti Finance Minister Mustafa al Shimali made an official visit to Beijing and told Chinese Minister of Finance Xie Xuren that Kuwait officially invites Chinese entities and businessmen to take part in its five-year development plan running through 2014. Major elements of the five-year development plan are intended to propel Kuwait to become a regional trade and financial hub through sustaining economic development, economic diversification and GDP growth. Among the major projects that al Shimali mentioned as of possible interest to Chinese businessmen and investors are renovating energy and oil facilities, establishing a new business hub, a major container harbor, a 15.5 mile-long causeway, a railway and metro system, infrastructure, hospitals, institutes, and universities.

Last but hardly least, al Shimali thanked Xie for the Chinese government’s support that enabled Kuwait Investment Authority, an investment arm of the Kuwaiti government, to open an office in Beijing, noting that it is the Kuwait Investment Authority's first ever representative office.

As for Sinopec extending its tendrils further into the Gulf, it might be noted that it already operates a $5 billion refining and petrochemical complex joint venture in southern China's Fujian province with Saudi Aramco and Exxon Mobil Corp.
In 2010 bilateral Sino-Kuwaiti trade reached $8.54 billion, a 68 percent rise from 2009 levels, or, using another measure, a level 40 times greater than compared to the beginning of official diplomatic relations four decades ago.
Expect Kuwait Investment Authority's Beijing office to be rather busy, but after all, wasn’t that why in 1991’s Desert Storm American troops liberated Kuwait from the Iraqi military forces of Saddam Hussein, to secure Chinese oil exports and Kuwaiti investment opportunities?

By. John C.K. Daly of Oilprice.com

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