Sinochem eyes low sulfur crude for Quanzhou refinery commissioning

Chinese state-owned trader Sinochem is seeking low sulfur crude for the commissioning phase of its 12 million mt/year (241,000 b/d) greenfield refinery in southern China's Fujian province, a source with the company said Thursday.

The Yuan 30 billion ($4.9 billion) Quanzhou refinery, targeted for startup by December this year, is designed to run on Kuwaiti medium heavy sour crude.

But Sinochem is looking for low-sulfur crudes for the first three months of operation as "the sulfur content of Kuwaiti oil and other Middle Eastern crudes, and even Russian ESPO is too high," he said.

"We would ideally like to use better quality crudes in the startup phase," the source said, adding that supplies from West Africa and Asia are likely options.

And even though the refinery is designed to run on Kuwaiti crude slate, Sinochem has yet to agree with state-owned Kuwait Petroleum Corp. for crude supply to Quanzhou and currently does not buy any volumes from Kuwait, he said.

The source said Sinochem would likely not want to be tied to large volumes of Kuwaiti supply as the crude is destination-restricted, which means the company would have difficulty reselling excess barrels.

Sinochem expects to run the refinery at 60%-70% utilization next year, before raising it to full capacity by 2015, the source added.

He added that the refinery's crude supply will likely comprise 50:50 or 60:40 term versus spot volumes.

Last November, Sinochem's assistant president Zhong Ren said about 80% of Quanzhou's crude could come from Kuwait, and suggested Saudi and Iraqi supply as alternatives.

The Quanzhou refinery originally involved KPC and Shell as minority partners and a deal was struck in 2007 for it to be underpinned by Kuwaiti crude. Sinochem subsequently decided to develop the project on its own and received final approval for the project in August 2012.

Quanzhou is Sinochem's first wholly-owned refinery and is designed to produce high quality jet/kerosene, gasoline, gasoil and aromatics. It is located in Fujian's Meizhouwan petrochemical base in Fujian and will help strengthen Sinochem's trading and oil products business in China.

All oil products from the refinery are expected to be sold domestically, although there will be stiff competition in the wholesale market, particularly as demand has been sluggish, the source said.

Quanzhou will compete with another refinery in Fujian, namely the 12 million mt/year Fujian Refining and Petrochemical Co., or FREP, which is a joint venture between China Petroleum & Chemical Corp., or Sinopec, Saudi Aramco and ExxonMobil.

The Quanzhou refinery does not have any export licenses at the moment. "We might apply for the export licenses and quotas once the refinery is operating normally," he added.

Sinochem has a chain of some 400 retail service stations in China, mostly located in the south and these are currently supplied with products from state refiners Sinopec and PetroChina.