Chinese state energy giant Sinopec is aggressively seeking greater access to Sri Lanka’s market, amidst a backdrop of intensified competition with neighboring India, which is also expanding its presence in the region. Sinopec’s ambitions include constructing its first fully-controlled overseas refinery, signaling a shift in the firm’s global strategy to counterbalance declining demand growth domestically.
Expected to complete a feasibility study by June, Sinopec aims to establish a refinery at the Chinese-managed Hambantota port, following approval from Colombo last November. This investment, estimated at $4.5 billion and deemed Sri Lanka’s largest-ever foreign investment, is seen by China as commercially motivated. However, India concurrently proposes a rival plan to construct a fuel products pipeline to the island nation, putting the two nations in direct competition for energy influence.
Sinopec’s decision to prioritize a refinery with a more domestic focus, contrasting with Sri Lanka’s preference for an export-oriented project, further intensifies the competition with India. This move underscores Sinopec’s strategic shift as it seeks to leverage its expertise and financial strength to expand globally amidst plateauing oil demand in China.
The company’s emphasis on the Sri Lanka investment, alongside another in Saudi Arabia, reflects a new trend in Chinese oil and gas investments abroad. Facing stringent scrutiny over finances and a decline in mergers and acquisitions since the 2014/15 oil price collapse, Sinopec is strategically diversifying its portfolio.
Negotiations between Sinopec and Colombo include finalizing details such as plant size and product configuration, with access to the import-dependent Sri Lankan market being a pivotal factor for Sinopec’s investment decision. Despite Sri Lanka’s insistence on a refinery that fulfills domestic fuel needs while generating export revenue, Sinopec views domestic sales as more lucrative.
Sinopec views the Hambantota project as a high-priority endeavor, alongside its joint venture with Saudi Aramco to expand a refinery into a petrochemical complex at the Red Sea port of Yanbu. Compared to its previous ventures, Sinopec anticipates lower costs and enhanced operational efficiency at Hambantota.
While Sinopec’s efforts to secure flexible terms for domestic marketing share have yet to yield results, Sri Lanka remains steadfast in its commitment to its fuel self-sufficiency goal. Minister Kanchana anticipates the signing of an investment agreement with Sinopec by June, further underscoring the significance of the project for both parties.
The intensified rivalry between China and India for influence in Sri Lanka extends beyond energy, encompassing infrastructure and economic assistance. As both nations vie for dominance, Sri Lanka finds itself at the center of a geopolitical struggle with far-reaching implications for its economic future.
Source: Reuters
