China Petrochemicals

02-08-2005

PETROCHEMICALS

China’s petrochemical and related sectors are currently experiencing an unprecedented level of engineering, design and construction, with numerous world-class petrochemical facilities scheduled to come on-stream in the 2004–2007 period. Petrochemicals are a key driver of Chinese petroleum demand, particularly to manufacture ethylene and other products underpinning the country's massive output of consumer durables. Some plants operate as subsidiaries or joint ventures involving Sinopec and PetroChina, whilst others are privately owned. Chinese demand for ethylene topped 12m tonnes per annum (MMtpa) in 2003, increasing by 15% in the first 7 months of the year. This increase is expected to double within the next decade. China is already a major importer of many plastics and polymer products so the need to develop new petrochemical facilities is enormous.

China’s two major state-owned companies - Sinopec and PetroChina still dominate the production of feedstock ethylene and many petrochemical intermediates and downstream products, and their combined capacity accounts for more than 90% of the country’s total output, however, increasingly, Sinopec and PetroChina, have been partnering with many of the world’s leading chemical companies to build world-class petrochemical complexes, including BP, BASF and Shell.

Oil, Gas, Refining & Petrochemical (Plant Design & Construction) Market in China - Opportunities

OPPURTUNITIES IN DOWNSTREAM

Transmission Pipelines
–(compression, metering, pipeline controls and management systems, integrity inspection)

LNG Terminals (EPC)
–1 under construction (Guangdong)
–1 pre – contract phase (Fujian)
–2 approved (Shandong & Zhejiang)
–6 under consideration (Shanghai, Behei (Guangxi), Yancheng (Jiangsu), Tianjin (Liaoning), Dalian (Liaoning)

Distribution Pipelines/City gas reticulation
–Regulating and metering installations
–Scada systems
–PE pipe
–Design consultancy and associated expertise.
–Remediation
–Training

OPPURTUNITIES IN UPSTREAM

–Offshore E/P (specialist equipment supplies, drilling equipment)
–Bohai Bay
–South China Sea Onshore E/P (sulphur removal plant, CO2 removal, fiscal metering)
–Sichuan Province
–Ordos Basin
–Tarim
UK Trade & Investment Contact: joanna.dunn@uktradeinvest.gov.uk

Key Methods of Doing Business

Foreigners generally do not have the right to market their own goods. Exporters therefore need to use a domestic Chinese agent for both importing into China and marketing within China. Only those trading companies authorised by the central government to handle exports and imports are permitted to sign import and export contracts. Some import/export trading firms represent foreign manufacturers as their distributors, in arrangements similar to a "manufacturer's representative". The larger of these companies have an international presence, as well as a network of offices and affiliates in China. However, given transportation and communication difficulties as well as regional peculiarities, most of these trading companies cannot provide diversified coverage throughout China.
Local sales agents do not have import/export authorisation. They buy imported products from those that do. Given China's size and diversity, as well as the lack of agents with wide-reaching capabilities, it makes sense to engage several agents to cover different areas, and to be cautious when giving exclusive territories. For this purpose China can be divided into five major regions: the South (Guangzhou), the East (Shanghai), the Central/North (Beijing-Tianjin), West China and the Northeast.
Representative offices are the easiest type of offices for foreign firms to set up in China, but these offices are limited by Chinese law to performing "liaison" activities.

NEXT STEP FOR UK INVESTORS

UK technologies are not well known and the emphasis from China has been to favour USA, Korean and Japanese contractors. For the UK to achieve any degree of success in this market, more effort has to be made to promote technologies in areas where there are gaps, introducing niche products and technologies to CNOOC. Companies will also need to be prepared to visit the market to build relationships with the Chinese operators. China already has a strong infrastructure in place to support a developing oil industry, but needs technology, particularly in the gas sector. Lower labour costs and a strong domestic manufacturing and service sector will make it very difficult for UK companies to enter these markets competing solely on price. Unless the UK products or services are highly differentiated from what is domestically on offer then the Chinese are likely to stay with their present options. Metalworking, fabrication, construction, and small-scale instrumentation services supplied from the UK are unlikely to prove attractive to the Chinese. Proven technologies and service provision from the hostile North Sea associated with downhole tools, drilling, completions, workovers, subsea and seismic operations, intelligence systems, deepwater applications, umbilicals, specialist valve and pipeline processes and specialist training skills that offer cost savings on lift costs or competitive advantages would be welcomed. UK companies lead the world in some of these sectors and have a great deal to offer a developing oil and gas region such as China.

UK Trade & Investment Contact: thomas.quinn@uktradeinvest.gov.uk