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Sinopec ramps up unconventional gas investments

27th March 2012

Chinese oil giant looks abroad to meet country’s spiralling energy demand

Chinese energy demand could be met by increased investment in unconventional resources

China Petroleum & Chemical Corp, will continue to invest overseas in unconventional natural gas and oil to boost its output and offset losses in its refining operations, China Daily reported on 27 March.

How much will be spent is not yet certain, but the company, also known as Sinopec, will concentrate on long-term investments in global oil and natural gas resources. These will include shale oil, shale gas, and other unconventional resources, said Chairman Fu Chengyu.

Sinopec forecasts a rapid increase in natural gas output, mainly from unconventional sources, in the next five years, he said.

President Wang Tianpu added that the company is also looking at investment opportunities in refining and petrochemicals, as well as warehouse and logistics operations overseas, to integrate its upstream and downstream business.

Sinopec reached an USD 8.5bn deal with Saudi Aramco, the state-run oil company of Saudi Arabia, in January for a joint venture oil refinery that will open in 2014.

In 2012, the company will make full use of the domestic and foreign markets to boost its capability to gain resources, and it will propel natural gas development, said Fu.

According to a report from China National Petroleum Corp, Sinopec topped the domestic oil majors to spend almost USD 20bin on overseas mergers and acquisitions in 2011, despite mounting crude oil prices that eroded its profits in the refining sector.

Chinese oil companies, like their foreign counterparts, are purchasing assets in unconventional gas, especially shale gas, and in the deepwater industry, said Wu Mouyuan, an expert at the CNPC Economics & Technology Research Institute.

Sinopec, which processed 217m metric tons of crude oil last year, reported a loss of 35.8bn yuan (USD 5.7 b) in its refining sector in 2011 as tightly controlled domestic oil product prices lagged far behind higher international crude oil prices.

Net profit fell 30 per cent in the fourth quarter of 2011, though full-year net profit was up 1.4 per cent at 71.7bn yuan, said Sinopec.

"Whether the refining business will stop losing money depends on changes in the crude oil price," said Fu said. "If it continues to rise, it's likely that the sector will remain in the red, though with a smaller loss."

If the pace continues this year, Sinopec will undoubtedly reap much larger gains, said Liang Jianmin, an analyst with Capital Securities.

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