OREANDA-NEWS. September 18, 2014. China National Offshore Oil Corporation is in talks with an unknown Western major to buy around 1 million mt/year of LPG, mainly propane, a company source said.

The volume could be lower than 1 million mt/year initially, he added.

"The cargoes supplied will comprise a combination of LPG, mainly propane, from the US, west Africa, Australia and the Middle East, but not Iran," the source said, adding that the cargoes would be priced on a floating basis. He declined to reveal what benchmark would be used as a basis.

"The contract is expected to take effect from 2015, and will last for about 5-10 years," he said, adding that the deal had yet to be finalized.

CNOOC's petrochemical complex in Huizhou will use the imported LPG as feedstock once the second phase of expansion is completed in 2017, the source said.

The expansion project involves building 16 units including a 10 million mt/year crude distillation unit and a 1 million mt/year ethylene production complex with 13 downstream petrochemical units.

Once completed, the 12 million mt/year refinery's primary crude processing capacity will be raised to 22 million mt/year, and its ethylene output capacity will be doubled to 2 million mt/year, Platts reported earlier.

LPG TO BE SOLD TO PDH PLANTS

CNOOC was said to be holding talks with many domestic propane dehydrogenation or PDH plants for the imported LPG ahead of the startup of its own petrochemical complex.

"Many domestic PDH plants have only signed term contracts to secure propane cargoes for about 1-3 years, and are not fully covered for their total requirements," he said.

"This provides a good opportunity for us to enter the market by taking advantage of our international business," he added.

Nine companies are building 11 PDH plants in eastern and southern China, which are estimated to require around 8.04 million mt/year of propane, most of which will be imported.

The 600,000 mt/year Tianjin Bohai Chemical PDH plant, which started full operations in November 2013, has a term deal with Everglory to buy 1.584 million mt of propane from US' Targa Resources for delivery from late 2013 to 2019.

The 450,000 mt/year Zhejiang Satellite PDH plant, which started trial runs in Jiaxing, in July, was said to have signed deals with three trading companies -- Japan's Astomos and Sojitz and possibly South Korea's E1 Corporation -- for a total 198,000 mt of imported propane this year.

The cargoes comprise a combination of propane from the Middle East, priced off the Saudi Contract Price, and from the US, priced off the Mont Belvieu marker, according to market sources.

Besides, Zhangjiagang Oriental Energy, which is building a 660,000 mt/year PDH plant in the eastern Jiangsu province, has a propane contract for an unknown volume for 2013-2014 with Targa via trading firm Vilma.

Shaoxing Sanyuan Petrochemical has propane supply contract, also for an unknown volume, for 2013-2015 with SK Chemical and Fujian Meide Petrochemical has a term deal for propane supplies over 2016-2020 with an unnamed supplier, industry sources said earlier.

"With more and more PDH plants starting operations in the next two years, China's demand for imported propane will also increase accordingly," the source said.