Asia’s top refiner Sinopec Group and its listed arm Sinopec plans further cuts to capital expenditures, a move that could undermine its effort to expand refining capacity to meet future demand in the world’s second largest oil market.
Even before the latest planned investment reduction — announced at a company meeting by Sinopec President Wang Tianpu in an effort to reduce “capital and investment risks” — a company adviser had told Reuters last month it would proceed with more caution in adding new refining capacity.
“There will be some impact on expansion, but unlikely substantial because cuts are mostly in non-core businesses,” said Liu Youcheng, an analyst with Hongyuan Securities in Beijing. China has been hit by frequent oil shortages as consumption was booming on robust economy while supply was restrained due to slow capacity expansion or output cut caused by refining losses.
Wang said Sinopec was under considerable pressure in terms of economic results and capital flows due to increasing competition in the oil petrochemical sector and expected high volatility in international oil prices.
The group would control the construction progress of new projects, delay those that are not urgent and cut those that are not necessary, Wang was quoted as saying in a report on a company website. Wang did not disclose the number of projects or the amount of investment to be cut.
In August, Sinopec Corp said it had cut 2008 investments by 8.5 billion yuan, including 8.2 billion yuan in capital expenditures, and company chairman Su Shulin said then that Sinopec might cut or delay more projects if the cash flow position did not improve.
It posted an 87 per cent fall in the second quarter of this year as low state-set fuel prices and soaring crude oil costs have pushed its refining business into the red, despite government subsidies.
Sinopec incurred 46 billion yuan of refining losses in the first half of this year, versus a 5.7 billion yuan refining profit a year earlier.
In addition to several refinery expansion plans along the Yangtze River, Sinopec had been considering doubling the Fujian refinery.
