Thu, Aug 05, 2010 - Page 12 News List

Kuokuang to shift to gas to salvage US$19bn plan

By Yu-huay Sun  /  BLOOMBERG

A venture led by state-run CPC Corp, Taiwan (CPC, 台灣中油) will switch to cleaner-burning natural gas from fuel oil to run a planned US$19 billion refining and chemicals project in a final bid to win government approval after a four-year wait.

Stakeholders in Kuokuang Petrochemical Technology Co (國光石化), including the Far Eastern Group (遠東集團) and Fubon Financial Holding Co (富邦金控), have agreed to shut the company should the plant fail to get environmental approval by Nov. 17, Chen Bao-lang (陳寶郎), chairman of the 43 percent CPC-owned venture, said in Taipei.

Switching to imported gas from fuel oil produced at the refinery may increase costs by NT$7.5 billion (US$236 million) a year, he said.

“Kuokuang is paying a higher cost to protect the environment,” Chen, 67, a former CPC president, said in an interview at his Taipei office. “The company doesn’t want to be a heavy burden on society.”

A government-appointed panel comprising academics and bureaucrats has raised concerns ranging from carbon dioxide emissions to protection of endangered dolphins and conservation of wetlands. Kuokuang has pledged to use gas for 60 percent of its needs to help halve emissions, and will buy the fuel from CPC, Chen said.

CPC, Taiwan’s largest refiner, is counting on the project’s 300,000 barrel-a-day refinery and an ethylene plant to compete with rival Formosa Petrochemical Corp (台塑石化). The Kuokuang venture will help CPC make up for lost capacity when one of its refineries in southern Taiwan is decommissioned.

“Without the Kuokuang project, CPC and its customers will be half dead,” Shieh Jun-hsiung (謝俊雄), executive manager at Petrochemical Industry Association of Taiwan, said by telephone. “Formosa Plastics [Group] would be the only dominant player in Taiwan’s petrochemical industry.”

CPC has three refineries — Kaohsiung, Talin and Taoyuan — with a total daily capacity of 720,000 barrels of crude. It has three naphtha crackers with a combined annual capacity of 1.1 million tonnes of ethylene, which is used to make make plastics and chemical fibers.

The Kuokuang project will make up for capacity from the Kaohsiung facility, including a 220,000 barrel-a-day refinery and a 500,000 tonne-a-year ethylene plant, which CPC has pledged to shut by 2015 amid complaints from residents about pollution.

The venture was set up in January 2006 to build a refinery, a 1.2 million-tonnes-a-year ethylene plant and factories to produce 20 chemical products, Chen said.

Kuokuang relocated the project in 2008 to Changhua County from Yunlin County to address concerns about water usage.

The construction cost of the project may climb to NT$600 billion (US$18.8 billion) from the prior estimate of NT$400.5 billion because of increased raw-material prices, he said.

Meanwhile, Formosa Petrochemical said it had restarted a crude processing plant on Tuesday, bringing the total number of crude units back in operation to two.

Formosa Petrochemical expects to reach two-thirds of its crude processing capacity by today, spokesman Lin Keh-yen (林克彥) said by telephone.

Separately, the company is cutting its ethylene supply to customers by 25 percent this month after shutting a plant last month, Lin said.

The company had shut its 540,000 barrel-a-day Mailiao (麥寮) refinery for safety reasons after an oil leak triggered a blaze at its No. 2 residual desulfurization unit on July 25.

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