Sinopec Luoyang Hopes To Build Commercial Oil Storage

The head of China Petroleum Corp.'s refinery in Luoyang has submitted a proposal to the government to build a commercial facility in Henan province that can store 4.5 million metric tons, or about 33 million barrels, of crude oil. "I hope the government accepts my plan to build this storage facility," Wei Wenbo, president of Sinopec Luoyang Co., said on the sidelines of the National People's Congress. "We have a refinery, we have a pipeline, and we are just missing commercial storage."

Wei said the storage hub would hold the equivalent of about 90 days of crude supply for the refinery.

The Luoyang refinery, a subsidiary of state-run Sinopec Corp. (SNP), is expected to process 8 million tons of crude in 2012, up a third compared with 2011, when it processed only 6.6 million tons due to 45 days of maintenance. The refinery's next round of maintenance will be in 2016, he added.

By 2020, the Luoyang refinery is expected to process between 18 million and 20 million tons of crude due to various upgrades including the construction of a unit capable of producing paraxylene, he said. Paraxylene is a petrochemical used in fiber and plastic bottles.

Wei said Sinopec Luoyang also hopes to construct a pipeline capable of shipping 20 million tons of crude annually from Shandong to Luoyang by 2020. By then, the refinery should also be able to produce higher-quality gasoline that meets Euro-IV grade standards, he said.

Meanwhile, China's National Development and Reform Commission will likely increase retail prices for diesel and gasoline this year due to high international oil prices, he said.

However, the NDRC, the top economic planner, likely won't be too aggressive in reforming the retail-fuel-price mechanism, which tracks a basket of crude prices over a 22-day period, he said.

Sinopec's Luoyang refinery booked a loss in 2011 of CNY2 billion due to high international oil prices, which it was unable to pass on to consumers because of government-fixed caps on domestic fuel prices.

If international oil prices rise above $100 a barrel, Sinopec Luoyang receives a government subsidy to compensate for refining losses, Wei said. However, these subsidies are capped once prices rise above $130 a barrel, he said.