A new $24 billion Chinese refinery that’ll use as much crude oil as some of Asia’s biggest plants is set to take on rivals by helping make plastic bottles rather than fuel for cars.

Rongsheng Petrochemical Co. has cleared more than 10,000 acres of land in Zhoushan island to build a 400,000 barrel-per-day facility by 2018, and will double that capacity by 2020, said Shou Bochun, a general manager at the trading arm of the privately owned company. Once the plant in eastern China reaches it expanded size by the end of the decade, it would rank among the top refineries in Asia, rivaling those of India’s Reliance Industries Ltd. and South Korea’s SK Innovation Co.

Hangzhou-based Rongsheng plans to consume all of the plant’s output of naphtha, a key ingredient in the manufacture of petrochemicals, while minimizing production of diesel and fuels, Shou said. At maximum capacity, the refinery will be able to produce 10.4 million metric tons a year of aromatics including paraxylene and 2.8 million tons of ethylene, both of which are used to make plastics, according to a proposal posted on the website of the Zhoushan government.

The company’s ambition underlines China’s increasing appetite for petrochemicals, used to make everything from sportwear to soda bottles. That will also help drive oil demand in the world’s second-biggest consumer amid a global glut and weak prices. Chinese petrochemical makers will need 90 percent more crude oil in 2030 than last year, while diesel demand growth is entering “a 10-year plateau”, according to Li Zhenguang, a senior analyst at China Petroleum & Chemical Corp., known as Sinopec.

“It is chemicals really that is driving China’s oil-demand growth,” said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong. “Going forward, gasoline and chemicals will be very important when it comes to driving crude oil demand in China.”

The nation’s oil consumption will rise to 700 million tons in 2030, or 14 million barrels a day, from 540 million tons in 2015, according to Li at Sinopec, which is China’s biggest refiner. He estimated the petrochemical sector will account for 19 percent of the country’s crude demand by the end of the next decade from 13 percent last year, which suggests consumption by the industry will almost double to 133 million tons.

China imported 11.6 million tons of paraxylene last year from countries including South Korea, Japan, Taiwan and India, up 17 percent from a year earlier and compared with 3.5 million in 2010, customs data show. That’s about half of its requirements for the product, according to Shou.

Polyester T-shirts

The Zhoushan project by Rongsheng, a polyester fabric producer, may add a blow to other Asian refiners competing for the fast-growing Chinese petrochemical market amid a supply glut in the region. The Asian nation’s factories are forecast to make about 25 million tons of synthetic fibers this year, according to Salmon Aidan Lee, a Singapore-based consultant at Wood Mackenzie Ltd. That’s enough to produce 208 billion T-shirts.

“Not only will this private petrochemical plant take market share away from PetroChina and Sinopec, but it will also take away market share from South Korean refiners and other regional competition,” said Nomura’s Kwan.

Apart from Rongsheng’s 51 percent, privately owned Tongkun Group Co. and state-owned Juhua Group each control 20 percent of the project. Zhoushan Marine Comprehensive Development and Investment holds the remainder. The companies will fund the plant, estimated to cost about 160 billion yuan ($24 billion), by raising debt and selling equity, said Shou.

Rongsheng’s shares fell 0.5 percent in Shenzhen on Wednesday. They are down 14 percent so far this year after more than doubling last year.

 

Source : bloomberg.com

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