PetroChina’s Qinzhou Comes Online – Analyst Blog

Chinese energy giant, PetroChina Company Limited (PTR) announced the start-up of Qinzhou refinery in Guangxi region of south China. The refinery has a daily processing capacity of 200,000 barrels of oil or 10 million tones annually.

 

Qinzhou is PetroChina’s first large-scale refinery in the region and also the largest industrial project in Guangxi. It aims at accelerating the supply of oil products in southwestern China as well as enhancing sectors such as infrastructure construction and logistics.

 

The refinery was initially scheduled to begin operations in June 2010. Though the start-up is delayed, PetroChina is now keen to focus on upgrading the refinery to avoid importation of inputs.

 

Key facilities of the refinery include 70,000 barrels per day (BPD) heavy residue catalytic cracker, a 44,000 BPD continuous reforming unit and a 44,000 BPD hydrocracking unit, which together cost 15.1 billion yuan ($2.2 billion). The entire output from the refinery met emission standards of Euro III, while 70% met the Euro-IV standard.

 

Recently, the Upstream segment of PetroChina posted strong first half results on the back of higher realized prices and production. On an annualized basis, crude oil and marketable natural gas output rose 1.7% and 12.9%, respectively. The refinery division processed 439.1 million barrels (MMBbl) during the six-month period, up from 389.3 MMBbl in the comparable period in 2009.

 

China’s robust economic growth has raised its demand for oil, natural gas and chemicals considerably. This growth momentum offers attractive opportunities for industry players that can meet the country’s mounting energy needs. PetroChina appears well positioned to benefit from these favorable trends; given it is one of the two integrated oil companies in the country.

 

Moreover, China’s burgeoning middle class and growing automobile ownership is expected to increase consumption of refined petroleum products.

 

However, we believe these positives are somewhat offset by heavy exposure to significantly mature producing areas, high-priced gas imports in the face of low domestic gas sale prices and uncertainty regarding the rollout of a new national resources tax.

  

Consequently, we have a Zacks Rank of #3 (short-term Hold recommendation)