China has given initial approval for a $20 billion refinery and petrochemical project to be built in eastern Shandong province as part of efforts to dial up infrastructure spending to support an economy struggling with the impact of the coronavirus pandemic.
The 400,000 barrel-per-day (bpd) refinery and 3 million tonne-per-year ethylene plant in Yantai, Shandong, the country’s hub for independent oil refineries, was proposed years ago but approval has been slowing in coming because of China’s struggle with excess refining capacity.
China’s state planner, the National Development & Reform Commission (NDRC), gave initial approval on Monday for the project, allowing Shandong province to start planning for construction, said the sources with knowledge of the approval.
The investment in the project will be nearly 140 billion yuan ($20 billion), according to one of the sources. Investors in the project include private smelter Shandong Nanshan Group and the Shandong provincial government.
The project could help cut China’s petrochemical imports but would likely worsen its surplus of refined fuel products.
Analysts expect the massive project to be operational around end of 2024, with revenue underpinned by petrochemicals, demand for which is more resilient than for transportation fuels that has been hit hard by the coronavirus.
“2024 is a good market entry point for Yulong as the global petrochemical industry starts to rebound from a downcycle resulting from previous overbuilds,” said Harry Liu, consultant for downstream business for IHS Markit.
The Yulong project will be the latest addition to China’s recent wave of petrochemical investments, which have been led by the private sector and drawn global giants like BASF and Exxon Mobil to build complexes in the world’s top petrochemical consumer and importer.
A newcomer in the field of oil refining and petrochemicals, Yulong hired in 2018 Luo Qiang, a refinery veteran previously with state giant Sinopec, as its general manager who now heads a project team of over 500 staff, said the source.
Last month Yulong also awarded Sinopec Engineering a 170 million yuan contract for overall design for the complex, the two sources added.
Yulong costs billions more than similar-sized plants, as some 20 billion yuan of the total cost will go to fund closures of small, inefficient plants Shandong province aims to mothball over the next few years to make room for Yulong, said the source.