Sinopec 2023 profit falls 13% on oil prices, refining record

Sinopec’s annual profits declined 13%, after oil prices fell and Chinese refiners posted a record year for processing and imports.

China’s largest fuel processor, officially known as China Petroleum & Chemical Corp., reported 58.3 billion yuan ($8 billion) net income for last year, it said in an exchange filing. That compared with 66.2 billion yuan in 2022.

Global oil prices were 17% lower in 2023 than the previous year, which reduced the value of Sinopec’s drilling output but also lowered its crude costs.

The results missed the average analyst estimate despite a rebound in its key refining margins, as upstream profits fell and its chemicals business continued to lose money. Chinese refiners ramped up fuel production last year to feed a populace eager to travel after Covid-19 restrictions were lifted. Still, the company had to grapple with a tepid economic recovery that created a glut of some chemicals like ethylene.

The increase in refining activity also boosted China’s oil imports to a record. The nation’s refiners benefited in particular from cheap Russian crude shunned by many nations after the country’s invasion of Ukraine.

Sinopec set its 2024 capital expenditure budget at 173 billion yuan, slightly below last year’s 176.8 billion yuan spending bill, mainly due to a scale-back in the chemical sector.

It plans to maintain modest growth in both output and processing in 2024, with targeted oil and gas production is 1% higher than 2023 levels and refining throughput to increase 0.8%. Domestic refined oil product sales, which jumped 16% last year, are only expected to rise 1.6% this year.

We remind, Sinopec Engineering (Group) Co. Ltd. has reported CNY/RMB 34.6 billion ($4.8 billion) in revenue from petrochemical contracts for 2023, up 9.5 percent against 2022. The company, majority-owned by the state’s China Petrochemical Corp. (Sinopec Group), attributed the growth to domestic projects including an ethylene production facility of Exxon Mobil Corp., an ethylene co-venture between Sinopec and Ineos, and the second phase of Sinopec’s Zhenhai Base refining and chemical complex.

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The US Department of Energy (DOE) has selected ExxonMobil’s Baytown, Texas, olefins plant carbon reduction project to receive up to USD331.9 million in funding under the USD6-billion Industrial Demonstrations Program (IDP), said Chemweek.

The announcement comes one month after a report in the Houston Chronicle that ExxonMobil might have to cancel the project if proposed federal tax incentives for the production of clean hydrogen exclude the use of carbon capture and sequestration (CCS).

The project, which ExxonMobil announced in March 2022, would include construction of a plant capable of producing 1 billion cubic feet of hydrogen per day from methane, with the associated carbon dioxide emissions to be captured and stored underground. ExxonMobil would use this “blue” hydrogen to fuel its olefins plant, which is currently fueled with natural gas. The company expects to make a final investment decision this year, with startup planned for 2027-2028.

At the time of the project announcement, ExxonMobil estimated that the project would reduce integrated site carbon dioxide emissions at Baytown by up to 30%. DOE, in its IDP announcement, said the project would reduce the olefins plant’s emissions by over 50%, or 2.5 million metric tons per year.

On February 22, the Houston Chronicle reported that executives at ExxonMobil were warning that the project might not proceed. Proposed federal tax rules would grant tax credits of $3 per kilogram for “green” hydrogen produced using power from wind and solar farms, whereas “blue” hydrogen produced from methane with CCS would only be eligible for tax credits of 60 cents per kilogram, the paper reported.

The newspaper quoted Mark Klewpatinond, global business manager for hydrogen at ExxonMobil. “If we’re not able to differentiate natural gas production, it’s highly unlikely Baytown would proceed,” he reportedly told the Chronicle. “It needs to compete for capital against other projects we have.”

We remind, QatarEnergy and ExxonMobil are on track to commence LNG production at their Golden Pass LNG export terminal, situated on the US Gulf Coast near Sabine Pass, Texas, during the first half of 2025. QatarEnergy, a state-owned entity, holds a substantial 70 percent stake in the Golden Pass project, which boasts a capacity exceeding 18 million metric tons per annum (mtpa). Notably, QatarEnergy will offload 70 percent of the terminal's capacity. In parallel, ExxonMobil, a prominent US-based energy firm, possesses a 30 percent share in the venture.

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JERA, Japan's top power generator, said it has agreed with ExxonMobil to jointly explore the development of a low-carbon hydrogen and ammonia production project in the U.S., said hydrocarbonprocessing.

ExxonMobil is developing what is expected to be the world's largest low-carbon hydrogen production plant at its Baytown Complex east of Houston in Texas, with an annual output capacity of about 900,000 metric tons of hydrogen and more than 1 million tons of ammonia. The project aims to start production in 2028.

Under the agreement, JERA may invest in the project and buy about 500,000 tons annually of low-carbon ammonia from the project for demand in Japan, it said in a statement.

Ammonia is seen as an effective future energy source. It does not emit carbon dioxide when burned, though its production releases emissions if it is made with fossil fuel.

"Cooperation among leading companies is essential to establish supply chains for ammonia, hydrogen, and other products that are key to zero-emission thermal power," said Steven Winn, JERA's senior managing executive officer.

Dan Ammann, president of ExxonMobil Low Carbon Solutions, said in the same statement: "Building world-scale projects for new markets requires supply, demand and supporting regulation to all come together in sync."

Japan, the world's fifth-biggest CO2 emitter, has been promoting ammonia as an alternative fuel to help reduce CO2 emissions at coal-fired power plants and other factories.

It aims to grow its demand for ammonia as a fuel to 3 million tons by 2030 as it pushes to achieve its goal of becoming carbon neutral by 2050.

JERA is set to start a trial this week of co-firing 20% of ammonia with coal at its Hekinan thermal power station in central Japan, in what it said will be the world's first trial using a large amount of the gas at a major commercial plant.

Environmentalists have, however, criticized the move as a way to extend the life of dirty coal-fired power generation.

We remind, QatarEnergy and ExxonMobil are on track to commence LNG production at their Golden Pass LNG export terminal, situated on the US Gulf Coast near Sabine Pass, Texas, during the first half of 2025. QatarEnergy, a state-owned entity, holds a substantial 70 percent stake in the Golden Pass project, which boasts a capacity exceeding 18 million metric tons per annum (mtpa). Notably, QatarEnergy will offload 70 percent of the terminal's capacity. In parallel, ExxonMobil, a prominent US-based energy firm, possesses a 30 percent share in the venture.


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Major South Korean petrochemical companies are actively investing in battery material businesses despite the current slump in the electric vehicle market, said Pulsenews.

Sources from the petrochemical industry said on Sunday that LG Chem Ltd. recently began fully operating its cathode material plant 4 in Cheongju, North Chungcheong Province, which began construction in 2020. The plant 4 had been the subject of test checks until recently after completing the installation of its last third line at the end of 2023. The first two lines, which were built earlier, each produce 10,000 tons of nickel-cobalt-manganese (NCM) cathode materials annually.

According to LG Chem‘s business report, the company’s advanced materials division, which includes battery materials, invested 690.3 billion won ($518.82 million) in 2023. This is more than four times the 164 billion won in 2021 and similar to the 696.5 billion won it invested in 2022, when the battery boom was going strong. The advanced materials division is known to have an overwhelming share of battery materials in its investments.

The proactive investments, contrary to market conditions, are believed to reflect the company’s determination to strengthen its non-petrochemical portfolios. The outlook for the petrochemicals business is bleak due to challenges from Chinese companies with price competitiveness and refiners entering the petrochemical sector.

Petrochemical companies are often rumored to be selling naphtha cracking centers (NCCs), which are particularly targeted by refiners as NCC uses naphtha, a byproduct of petroleum refining, as raw material in the initial stage of the petrochemical value chain. Refiners can expect to expand their profitability by vertically integrating into the NCC business.

LG Chem has been accelerating related investments since announcing its three major growth drivers (battery materials, eco-friendly materials, and new drugs) in 2023, and plans to secure a production capacity of up to 60,000 tons annually at its cathode material plant in Gumi, North Gyeongsang Province. The company also expects its cathode material plant in Tennessee, the United States, and lithium iron phosphate (LFP) cathode material plant in Morocco to begin mass production, in 2026, with the plants projected to produce 60,000 tons and 50,000 tons per year respectively. LG Chem is also considering building new nickel refining and precursor plants in Indonesia.

For its part, Lotte Chemical Corp. is actively investing in battery materials as a future growth driver. It is currently preparing to enter the electrolyte organic solvent market after producing materials for battery separators and plans to inaugurate a cathode foil production facility in the United States in 2026.

SKC Co. also plans to inaugurate two plants in Malaysia and one in Poland in the first half of 2024, via its subsidiary SK nexilis Co., which produces copper films. The company is also considering additional investments in production facilities in North America.

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Japan's petrochemical sector will need to consolidate in response to heightened competition from emerging petrochemical complexes in China and the Middle East, the head of the country's oil industry body said on Monday, as per Reuters.

"We anticipate that the operational landscape for petrochemical equipment in Japan will prove challenging in the upcoming year, given the impending commissioning of various new complexes," Shunichi Kito, president of the Petroleum Association of Japan (PAJ), told a news conference.

For Japanese petrochemical companies already grappling with a tough earnings environment, the export of olefin like ethylene is expected to worsen, said Kito, who is also the president of oil refiner Idemitsu Kosan 5019.T.

"I believe that consolidations within the petrochemical industry, or efforts to enhance efficiency and rationalise operations, will inevitably become imperative," he said.

China is adding new petrochemical capacity despite a global glut as the country's refiners diversify from transport fuels, threatening to depress margins worldwide through 2024 as weak economic growth saps demand.

We remind, Japan-based chemical company Sumitomo Chemical has begun construction on its pilot plant to develop new process technology to manufacture propylene directly from ethanol. The development of this propylene manufacturing technology is being financed by the Green Innovation Fund of the New Energy and Industrial Technology Development Organization.

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