China refiner moves forward with expansion despite sanctions
A Chinese refinery operator whose main business was disrupted when it was sanctioned by Washington in May for buying Iranian oil is pressing ahead with a $3.6-B petrochemicals expansion project, two people familiar with the plan said.
The construction taking place at the Xinhai Chemical site in north China's Cangzhou city underscores how the country's independent refiners, Iran's largest oil customers, manage to maintain their business despite falling foul of expanding Western blacklists aimed at curtailing oil revenues to governments including Tehran and Moscow.
Early last year, parent firm Hebei Xinhai Holdings Group announced a $7.08-B plan to transform the refiner into a chemical producer, state media reported.
About half of that investment is earmarked for the first phase of the petrochemicals project, which is slated for completion by end-2026, said a person with direct knowledge of the matter, declining to be identified due to the sensitivity of the issue.
In May, Xinhai Chemical, the unit that operates a 120,000-bpd refinery, and several Chinese oil terminal operators were designated by the U.S. Treasury for buying hundreds of million dollars worth of Iranian oil under efforts by U.S. President Donald Trump's administration to pressure Tehran to curb its nuclear activities.
The sanctions initially caused disruptions for Xinhai Chemical, the main business unit of Xinhai Holdings, including suspension of services from state banks.
However, the refinery soon found workarounds by operating through entities segregated from the blacklisted firm and continues importing Iranian oil, said one of the people familiar with the expansion and a third source.
"The company has recovered from the initial, brief disruptions," one of them said.
Xinhai Holdings and Xinhai Chemical did not respond to emails seeking comment.
The U.S. Treasury declined to comment.
The expansion is being run under Hebei Zhixiang Chemical New Materials, which is separate from Xinhai Chemical, one of the sources said. Reuters was unable to find business registration details for the company.
TEAPOT WORKAROUNDS
Other Chinese independent refiners, also known as "teapots", subject to sanctions this year have also shifted activities into separate firms to keep business flowing, Reuters has reported.
"It is understood some of the sanctioned teapots are renaming and reorganizing themselves, presumably because these sanctions do bite," said Tan Albayrak, a London-based sanctions lawyer at Reed Smith.
"However, if the new entity is seen effectively as a 'spin-off' to the previously sanctioned entity, then that may be sufficient to deter parties from dealing with it depending on the commercial risk appetite," Albayrak said, speaking of sanctions in general.
It was not clear if the Xinhai expansion could be slowed or disrupted by difficulties in accessing foreign technology because of the sanctions, but two industry experts said the project could opt to lean on domestic know-how and equipment.
The Xinhai facilities under construction include a 3-MMtpy hydrocracker, a 1.2-MMtpy aromatics unit and a 3.5-MMtpy toluene disproportionation (TDP) facility, one of the sources said.
Slated to open in the first half of 2027, the plant will produce mixed xylene, an intermediary for making paints and detergents, benzene and gasoline additive methyl tert-butyl ether (MTBE), as well as propylene oxide (PO) and polyisobutylene (PIB), the source said.
Xinhai Chemical has a 74,000-bpd oil import quota, among the largest allocated by the Chinese government for plants its size.
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