China's Sinopec, the country's largest refiner, is building a 200,000-bpd refinery in southern China, which will use Kuwaiti crude as feedstock, unnamed sources told Reuters.
The refining and petrochemical complex will cost some $5.7 billion and will boost Kuwait's exports to China to 600,000 bpd, the sources also said. Earlier this month, Kuwait's state news agency KUNA reported that the country planned to increase its exports to China to more than 600,000 bpd next year without mentioning what was their current level.
Kuwait produces less than 3 million bpd at the moment, bound by its OPEC quota, but it has the capacity to produce more than 3 million bpd.
For China, this is the third new petrochemical complex built in just two years amid a steady and fast increase in oil demand. This demand recently sparked a rally in Middle Eastern oil prices, with two new refineries starting up this year, with their combined capacity at 800,000 bpd, both property of independent refiners: the teapots who have driven most of the demand increase.
This increase has naturally driven an increase in oil imports to record highs this year and also to record-high refinery processing rates. In May, CNPC said it expected the average refinery processing rate, thanks to the new capacity additions, to rise to 12.68 million bpd, a record hit in April.
This increase in processing and output has pressured refiners' margins as the regional fuels market has swung into oversupply but it seems this is not enough to stop the construction of even more refining capacity.
It is also noteworthy that Sinopec is pairing with Kuwait's oil company rather than one of the bigger exporters in the region, with both more production and capacity. Yet it is very likely that Kuwait could offer more stable prices than larger OPEC members in the Middle East. This year, Saudi Arabia has several times increased its official selling prices for Asian buyers for various reasons, swelling refiners' import bills.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More