PetroChina and Sinopec to limit expansion
February 24, 2014 Category Petrochemicals, Weekly
PetroChina and China Petroleum & Chemical (Sinopec) are expected to trim spending in the next few years. Contributing factors are flat oil prices, rising debt, slowing growth in demand and excess capacity in oil refining and chemicals. Lower spending on expansion and a change in focus to quality rather than the growth rate may end seven years of declining returns, according to Analyst Neil Beveridge, the principal author of a Sanford Bernstein research report. He said the firms’ total capital expenditure may have peaked at CNY520 billion in 2012 and projected it would fall to CNY480 billion this year. While the two oil and gas majors budgeted total spending of CNY537 billion last year, he expected PetroChina to report next month a “significant reduction” in actual spending from the level in 2012 and Sinopec to report flat spending. A Sinopec Spokesman said: “The company will be more focused on quality and efficiency of capital expenditure in 2014, and not regard scale expansion as an objective.” Beveridge said the two firms are playing catch-up to Western counterparts in embracing “a new paradigm that big is no longer beautiful”, especially given market expectations that oil prices will be flat and a steady rise in operating costs over the next few years. This will push them to become less capital-intensive, less acquisitive, more cost-conscious and more open to disposal of under-performing assets, Beveridge said. PetroChina has delayed three new refineries or expansion projects owing to overcapacity.
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