InterviewDushanzi strives for '08 start - Huanqiu

26 December 2007 05:08  [Source: ICIS news]

By Florence Tan

BEIJING (ICIS news)--Dushanzi Petrochemical is still striving for a 2008 start-up for its 1m tonne/year cracker despite logistics constraints and tough weather conditions,  an executive from Huanqiu Contracting and Engineering said on Wednesday.

Engineering, procurement and construction (EPC) firm Huanqiu and Dushanzi both belong to China National Petroleum Corp (CNPC), PetroChina’s parent. Sources close to Dushanzi said earlier that the project could be delayed to 2009.

Dushanzi is located in remote landlocked Xinjiang province where equipment ordered from southern Guangdong province will have to travel 6,000km, Wei Yanchang, Huanqiu’s vice president for procurement, said in an interview.

China’s tight control on overloaded trucks has also lengthened transportation time to over a month for some parts, he added.

Some equipment, such as a column that was more than 105m long and weighed over 1,200 tonnes, cannot be moved by rail and have to be assembled on site due to its sheer size, Wei said.

Harsh winter conditions made it mandatory for construction work to stop three to four months each year, Wei said.

Despite these obstacles, Wei said there was still hope that the project could meet its 2008 start-up date based on its current progress.

The increasing sophistication of China’s equipment makers, lower costs and access to technologies kept Huanqiu ahead of competition globally, Wei said.

The company recently bagged a contract to build a high density polyethylene (HDPE) plant for Saudi Kayan, a unit of Saudi Basic Industries Corp (SABIC), beating European and American firms who faced high costs, he added.

It also snagged two contracts in Egypt for a sulphuric acid unit and a polyethylene terephthalate (PET) plant as it owned technologies, Wei said.

“Rising raw material costs increased risks for EPC companies. Some have gone bust because they weren’t able to get compensated for rising costs, Wei said.

“For Chinese companies, it’s a risk and also an opportunity.”

The quality of China-made equipment improved over the years to meet international standards and they maintained a low cost base especially for labour, he added.

“For example, while raw material and labour costs have risen by around 30% each for a piece of equipment, costs in China were up just 10-15%,” he said, adding that lead time for compressors has also lengthened to 24 months from 18 months as many overseas equipment makers were overbooked.

Chinese equipment producers are gradually moving beyond making furnaces to complicated compressors.

To promote local technology, China’s top economic planner, the National Development and Reform Commission (NDRC) requires at least one of three compressors (cracked gas, ethylene and propylene) in a cracker to be made locally.

Two of them, cracked gas and ethylene compressors, were in commercial use, Wei said, adding that locally made equipment cut costs by 20-40% and shortened lead time by two to six months.

Sixty percent of a cracker and 75-80% of a refinery can be made in China, Wei said, adding that the target was to increase local content in a cracker to 80% in 2010.

To reduce risks, Huanqiu timed its raw material purchases and created inventories, Wei said. The company also joined a global trend when it signed a “convert to lumpsum turnkey” contract with Kayan which splits risks between EPC firms and project operators.

This allowed Huanqiu to place large orders on behalf of Kayan and convert the contract into a lumpsum turnkey basis when procurement was completed, Wei said.

Huanqiu, which has been building plants overseas since the 1990s, was absorbed into China National Petroleum Corp (CNPC) in mid-2005. This turned its focus to supporting the energy major’s projects within China.

Besides Dushanzi, the company is also building crackers in Daqing, Fushun and Sichuan.

Huanqiu could also be the first to build a large-scale methanol-to-propylene (MTP) plant in Ningxia for Shenhua Energy for start-up in 2009. If the plant operates well, it could lead to more investment in coal-to-chemical plants, Wei said.

Despite having multiple projects back home, Huanqiu is not letting lose of its grip overseas. Strong financial backing from CNPC enabled Huanqiu to provide loans for companies, especially in southeast Asia, Wei said.

In Vietnam, a stronghold for the company, it has signed EPC contracts for a $150m (€105m) compound fertilizer unit and a $500m ammonia-urea plant while in Myanmar, it is building a fertilizer unit.

Huanqiu could also follow its parent CNPC to build petrochemical plants downstream of its overseas refineries, Wei said.

($1 = €0.69)

By: Florence Tan
+65 6780 4359

< previous article(ICIS Chemical Business podcast November 2, 2009)

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