Under the influence of the widening domestic and international oil price gaps, the Western Pacific Petrochemical Co., Ltd. (West Pacific Petrochemical), a joint-venture refinery that was restricted for export, suffered serious losses.
Established in 1990, West Pacific Petrochemical is the first Sino-foreign joint venture petrochemical enterprise approved by the State Council and jointly invested by China and France. Its crude oil processing capacity is as high as 10 million tons per year. This is by far the only joint venture oil refining company in China. The Chinese shareholders include PetroChina, Sinochem (Hong Kong) Petroleum International Limited, Sinochem Corporation and Dalian Construction Investment Corporation, and the French shareholder is Total.
This oil refinery company, with a total investment of US$1.013 billion, was Dalian's largest investment attraction project in the late 1980s and received special preferential policies. Western Pacific Petrochemical is a typical “two out†company, which imports crude oil from abroad, processes it into refined oil at home, and sells it to foreign countries. Western Pacific Petrochemical insiders told the "Finance" reporter that at the beginning of the establishment of the West Pacific Petrochemical, production and processing of refined oil are all sold abroad; from 1996, domestic sales and exports of refined oil ratio is set at 5:5; Since 1998, the proportion of domestic sales and exports has been adjusted to 6:4.
In the ten years since its establishment, Western Pacific Petrochemical has only lost two losses. The first loss was in 1998 when Western Pacific Petrochemical was fully put into production. It was in a period of running-in; the second time was after the September 11th incident in 2001, the international oil price changed, and the loss in the fourth quarter was offset by the previous Three quarters of profits led to the loss of West Pacific Petrochemical.
In recent years, the international oil price has rapidly risen, China's domestic refined oil prices have not risen correspondingly, and domestic refinery companies have experienced rising costs of oil refining and began to suffer losses. Since 2008, the international crude oil price has further exceeded US$100 per barrel. Domestic refined oil exports have been almost banned. Western Pacific Petrochemicals has also been unable to avoid the fate of losses. "From the beginning of 2008 to the present, we have already lost more than one billion yuan." On May 6, a staff member of the Western Pacific Petrochemical Office expressed concern to the "Finance" reporter. On the same day, the New York Mercantile Exchange crude oil futures reached new highs and broke through 120 US dollars.
A person from West Pacific Petrochemical admitted in an interview with the “Finance†reporter that the “oil shortage†in the country has also caused a certain impact on Western Pacific’s refined oil exports. In recent years, in order to ease the contradiction between supply and demand in the domestic refined oil market, although the government has not explicitly prohibited the export of refined oil, it does not encourage the export of refined oil. A clear shift is that it is difficult for Western Pacific Petrochemical to apply for refined oil exports. The above-mentioned insiders told the “Finance†reporter that the frequency of Western Pacific Petrochemical business personnel traveling between Beijing and Dalian has increased significantly. “The domestic refined oil market is in tight supply, and now it is becoming more and more difficult to report plans and get approval.â€
Total (China) Investment Co., Ltd. declined to comment on the loss of Sinopec's petrochemicals.
However, many investors, including the Dalian municipal government, are anxious. "With so much loss now, we can only compensate the Ministry of Finance and the National Development and Reform Commission for policies to make up for losses." According to the above-mentioned insiders, the NDRC's proposal has been reported to include the purchase of diesel fuel at international prices to ease the tight diesel situation. In this case, Western Pacific Petrochemicals will at least lose money. "The possibility of approval is still very promising."
For the foreign oil companies that have been ignoring the Chinese market, Western Pacific Petrochemicals was once an enviable success. However, its current difficulties are no doubt an alarm for companies that are eager to enter the Chinese oil refining market.