LDN - Business

China's Sinopec mulls U.S. oil projects ahead of Trump's visit: sources

[October 31, 2017] By Florence Tan

SINGAPORE (Reuters) - China's state oil major Sinopec is evaluating two projects in the United States that could boost Gulf Coast crude oil exports and also expand storage facilities in the Caribbean, two people familiar with the matter said on Tuesday, with U.S. President Donald Trump set to visit Beijing next week.

With U.S.-China energy trade likely to feature prominently during Trump's visit, the people said one of the projects could see Sinopec <600028.SS> <0386.HK> partnering with U.S. commodities trader Freepoint Commodities LLC and U.S. private equity firm ArcLight Capital Partners LLC.

The trio is mulling building a pipeline to move shale oil from the Permian basin in Texas to the U.S. Gulf Coast for export, the people said.

This project also includes the construction of a terminal that can load 2 million barrels of crude onboard a Very Large Crude Carrier (VLCC), they said. This will reduce a big chunk of logistics costs incurred for U.S. crude exports, making the oil more competitive in Asia, the sources said.

ArcLight and Freepoint are among the U.S. energy and commodities firms that will make up a major part of a business delegation visiting Beijing when Trump goes to China next week.

Sinopec and the U.S. firms have also been exploring an expansion of oil storage at Limetree Bay (LB) Terminals in St. Croix, U.S. Virgin Islands, in the Caribbean, and restarting an idled refinery at the same site, the people said. They declined to be identified because they were not authorized to speak to media.

The Chinese company, which is Asia's largest oil refiner, ArcLight and Freepoint declined to comment.

The investments could reduce China's trade deficit with the United States, a source of tension between the world's two largest economies, while allowing Beijing to tap growing U.S. crude supplies as the top global oil importer seeks to diversify its import sources.

INTERNATIONAL EXPANSION

Taking stakes in oil infrastructure is also part of Sinopec's ambition to expand its global trading profile. Sinopec already owns part of a Saudi refinery at the Red Sea, although a recent attempt to buy a Chevron <CVX.N> refinery in South Africa's Cape Town was thwarted by Glencore PLC <GLEN.L>.

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A Sinopec sign displayed at its gas station is seen behind a Chinese New Year lantern installation in Hong Kong February 5, 2013. REUTERS/Bobby Yip/File Photo

"There is room for energy cooperation between China and the United States, but the projects will have to be commercially viable before the companies reach any agreement," one of the people familiar with the matter said.

LB Terminals, a joint venture between ArcLight and Freepoint Commodities, said on its website that it planned to double its oil storage capacity and restart the 650,000 barrels-per-day (bpd) refinery at the site.

In a 10-year strategic deal, Sinopec has already leased 75 percent of the existing crude oil storage capacity at LB Terminals. (http://reut.rs/2lsMHfm)

China overtook the United States to become the world's largest crude oil importer this year as shipments grew on declining domestic oil output and refinery expansions.

Sinopec's trading arm Unipec is set to import 5.7 million tonnes, equal to about 42 million barrels, of U.S. crude in 2017, making it the largest U.S. crude buyer in Asia.

Chinese refineries like certain U.S. crude grades because they are easy to process and have a low-sulphur content, enabling them to meet more stringent fuel standards as Beijing fights pollution, said multiple trade sources.

The Americas are expected to overtake Africa as the world's second-biggest crude supplier to Asia by 2025, Unipec said in September.

(Reporting by Florence Tan; Additional reporting by Chen Aizhu in BEIJING; Editing by Kenneth Maxwell and Christian Schmollinger)

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