SINGAPORE (Reuters) - Key Asian refinery projects that would help ease a shortage of global capacity this year have run into delays as Indian and Chinese firms facing steep losses on domestic sales see little incentive to rush plans.
India's new Essar Oil refinery has been pushed back again, while a major new crude unit at PetroChina's Dalian plant will likely run at reduced rates into next year after a late-2005 start, a Reuters survey of expansion plans shows.
This means Asian plants will have added only about 400,000 barrels per day (bpd) of primary refining capacity by year's end, less than the 734,000 bpd expected in January.
More modest slippage in other projects has also pushed new capacity toward the end of this year, or from 2006 into 2007, keeping traders on edge over when the global refining industry will be able to restore a supply cushion to tight markets.
PetroChina appears set for technical completion of its 200,000-bpd crude distillation unit (CDU) at Dalian as expected by the end of this year, but it is likely to run below full capacity, a company official told Reuters.
Chinese refiners, saddled with negative margins for much of this year due to capped domestic sales prices, may be intentionally staggering new incremental capacity, said an analyst with a global investment bank, who declined to be named.
"Sinopec told us that they wanted to spread out the start-up dates, and to avoid the mistake made earlier this year with the two new naphtha crackers in China," the analyst said.
Ethylene prices spiralled down after Shanghai Secco Petrochemical Co. Ltd. -- a joint-venture between BP, Sinopec and Shanghai Petrochemical Co. -- started up its 900,000 tonne-per-year (tpy) cracker in the second quarter of this year.
BASF-Yangzi Petrochemical -- a joint-venture of Sinopec and Germany's BASF -- also commissioned its 600,000-tpy cracker at Nanjing during the period.
"Chinese refiners may not be in a hurry to bring onstream the new projects because of the price control on gasoline and diesel, as well as the current weak refining margins," said Victor Shum, an analyst with downstream consultancy Purvin and Gertz.
Chinese plants have also been given some breathing room by slower demand growth, which is estimated to come to only 6-7 percent this year, versus 15 percent last year, he added.
The construction delays threaten to prolong oil's two-year price rally, which lifted prices to another record above $67 a barrel, spurred in part by a shortage of new refining capacity able to meet stronger-than-expected demand growth.
Dealers are particularly anxious about supplies this winter, when Northern Hemisphere heating fuel use drives global consumption to its seasonal peak, and the delays will do little to ease their concerns.
INDIA FORCED TO IMPORT
India's mostly state-owned refiners have been hit by the lag in raising state-regulated domestic fuel prices versus soaring international crude costs.
India imports more than two-thirds of its crude oil requirements and has been forced to import low-sulphur fuels this year after refiners were unprepared for tighter specifications.
Indian Oil Corp.'s (IOC) new 120,000-bpd CDU at its Panipat refinery -- doubling capacity -- has been pushed from mid-year to October 2005, while Bharat Petroleum Corp. Ltd.'s CDU project at Bombay slipped from March to July, officials have said.
Essar Oil Ltd.'s oft-delayed new refinery will be completed by July next year, six months behind its initial target, the company said last month.
The delays come as companies engaged in building the multi-billion dollar facilities struggle to cope with demand for new plants, with many Asian refiners hoping to capitalise on strong margins after a near decade-long downturn.
"We don't have enough contractors and we don't have enough raw materials" to satisfy customer demand, Ryutaro Iwai, a senior official at Japan's JGC Corp., one of the world's five- biggest refinery construction contractors, told Reuters.
Caltex Australia Ltd., which operates nearly a third of the country's refining capacity, said last week it was seeking a three-month extension on meeting a Jan. 1 clean fuels deadline due to late arrivals of materials, equipment and reactors.
Other secondary unit upgrades are also running behind, including China's West Pacific Petrochemical Corp. (WEPEC) new 2 million-tpy diesel hydrotreating and fuel upgrading facilities at IOC and BPCL in India.
(Additional reporting by Felicia Loo in Singapore, Emma Graham-Harrison, Judy Hua in Beijing, Himangshu Watts in New Delhi and Jiwon Chung in Tokyo)