Chinese ambitions of expanding in the downstream overseas have all but ground to a halt as poor profitability has dampened investment appetite.
State-owned behemoths PetroChina and Sinopec had at one point seemed keen on expanding in refining and storage overseas but while upstream acquisitions have continued apace, downstream investment has dwindled this year.
PetroChina formed the Petroineos trading and refining joint venture with European chemical and refining company Ineos in 2011, paying just over $1 billion in cash for a 50% stake in the Grangemouth refinery in Scotland and Lavera refinery in southern France.
In 2009 it paid $2.2 billion to buy Singapore Petroleum Corp., giving it a stake in the 290,000 b/d Singapore Refining Co. on Jurong Island.
In May last year there was also strong speculation that it had been eyeing Valero Energy's shuttered refinery in Aruba, after having leased 5 million barrels of storage at St. Eustatius in the Caribbean.
At the time, analysts had said increasing its refining footprint in Europe and the Caribbean would give PetroChina a stronger trading position in the Atlantic Basin.
Expanding its presence overseas was also seen as a way to increase profitability when its refineries in China were in the red due to government price controls on gasoline and gasoil.
Nothing came of the Aruba deal and Valero later said it would convert the refinery into a refined products terminal.
A change in management in the last year as well as an ongoing corruption scandal involving former senior management officials has also shifted PetroChina's priorities. While previously it was focused on maximizing revenue growth, it is likely to adopt a more focused strategy going forward.
"When we talk with PetroChina management, they talk about a shift in strategy which is from volume to value and from quantity to quality," said an analyst in Hong Kong, who declined to be identified. "They are saying they want to shift their capex [capital expenditure] more towards the upstream sector, which is where they can make money, instead of just losing money in the downstream."
This point has been driven home by Grangemouth, which has been loss-making due to high costs as well as a significant fall in North Sea gas output, which feeds much of its petrochemical units. This month workers threatened industrial action after management proposed salary and pension cuts as part of cost-cutting efforts to remain viable. Ineos decided to shut the refinery on Wednesday in order to resolve the dispute with its workers.
Another factor is that China has undergone significant domestic refinery capacity expansions in the last few years so there is less urgency to secure oil products overseas. On the contrary, companies are now likely to reduce their refining investment to prevent the emergence of an oversupplied market domestically, said a source at PetroChina.
"The European refineries are pretty much loss making. In future there won't be any similar investments," he added.
Sinopec has not acquired any overseas refineries since it agreed to partner in the export-oriented Yasref refinery with Saudi Aramco in Yanbu in early 2012, after which it spent the rest of the year investing heavily in storage. The company is the dominant refiner in China and has concentrated its acquisitions mainly in the upstream in the last decade to boost production and reserves.
It broke ground at the $840 million West Point oil storage terminal in Batam, Indonesia a year ago and acquired a 50% stake in Swiss trader Mercuria's Vesta Terminals in Europe around the same time.
These added to its 50% stake in the Fujairah oil terminal project in the UAE alongside Singapore-based trader Concord Energy.
In June this year it agreed with Korea National Oil Corp. to build a commercial storage terminal in Ulsan, South Korea.
Sinopec has said it will use the storage facilities to supplement its trading activities in Asia and the Middle East, particularly once Yasref starts operating next year.
While the companies may have scaled down their downstream investments, they continue to support projects abroad that are either funded by other Chinese state entities or linked to upstream investment.
Sinopec is reported to be involved in building a new refinery for Cambodia as part of a loan agreement provided by the Export-Import Bank of China, while PetroChina's parent China National Petroleum Corp. has often supported refinery projects in Africa and Latin America.
--Song Yen Ling, firstname.lastname@example.org --Edited by Alisdair Bowles, email@example.com