Chinese state energy giant Sinopec is making a strategic push into Sri Lanka’s energy market, where it plans to build its first fully-controlled overseas refinery. This move puts Sinopec in direct competition with India, which has been seeking to expand its presence and influence as an energy supplier in the region.
Sinopec, the world’s largest oil refiner, is expected to complete a feasibility study by June for a plant at the Chinese-run Hambantota port, after securing approval from the Sri Lankan government last November. The proposed $4.5 billion investment, which would be the largest-ever foreign investment in Sri Lanka, marks a shift in Sinopec’s global strategy as it looks to compensate for slowing demand growth at home.
Unlike the export-focused project originally sought by Sri Lanka, Sinopec is prioritizing a refinery with a more domestic orientation, putting it in direct competition with India’s efforts to expand its role as an energy supplier to the island nation. India’s state-owned Indian Oil Corp is currently the second-largest fuel supplier to Sri Lanka, after the country’s state-owned Ceylon Petroleum Corp.
Sinopec’s strategy reflects a broader trend in Chinese oil and gas investments abroad, as mergers and acquisitions have dried up in recent years following the 2014/15 oil price collapse and increased scrutiny from Beijing over the finances of its national oil giants.
The Sri Lankan government is seeking a refinery that would deliver 20% of the country’s fuel domestically and export the rest to generate much-needed foreign exchange. However, Sinopec is prioritizing domestic sales, which it believes would be more profitable.
The company is considering either a 160,000 barrel per day (bpd) plant or two 100,000-bpd plants built in phases, both of which would focus on producing gasoline and diesel fuel.