Steps Taken For Refining Action

BMI View: Sinomach China and Cambodian Petrochemical Company have unveiled a final plan to build Cambodia ' s first refinery plant by 2015. Domestically refined product s will help the country ease its trade deficit burden in the context of a rapidly growing refined products demand. However, mounting anti-China sentiment could prove an obstacle to the project's development, as we saw happening in Myanmar in September 2012.

In late December , Sinomach China Perfect Machinery Industry Corp unveiled its plan to build Cambodia's first refinery in a joint venture with Cambodian Petrochemical Company , to be located within the Kompong Som area . The project has an estimated cost of US$2.3bn and is scheduled for completion by the end of 2015. Once operational, the refinery will produce 100,000 barrels per day (b/d) of various fuels. This large refining capacity will most likely cover and even surpass the domestic consumption that peaked at around 34,000b/d in 2008 and fell back to 26,000b/d in 2010 following the global financial crisis.

Fundamentally Driven
Cambodian Refined Product Consumption, 1997-2010 ('000b/d)

The construction of a large refinery is part of Cambodia's plan to ease its dependence on energy imports and international aid ( which have constituted up to 50% of its national budget). It comes amid several projects such as t he recently announced joint venture between Cambodian Royal Group and Chinese Hydrolancang International Energy to build a 400-megawatt hydropower dam on the Mekong tributary in Stung Treng province . Similarly, the country's aim of develop ing its offshore hydrocarbons resources will ease the burden of energy imports , if successful. Chevron , operator on Cambodia's Block A expects first production of hydrocarbons to come by 2016.

While we do not currently provide forecast s for Cambodia's refined product s consumption, we expect it to grow tremendously in the coming years, at least at the same rate as before 2008. There are three factors that support our view. Firstly, Cambodia ' s population is growing at fast pace. The UN is forecasting a 12.4%increase from 14. 14mn in 2010 to 15.89mn in 2020 , creating a large fundamental increase in fuel demand. Secondly, fuel demand has been growing over the past decade , despite stagnating wages among low and middle class workers , and we could see demand rise further - our Country Risk team forecast s an average 6.6% growth of the next five years. Thirdly, the country ' s vibrant tourism sector , which suffered following the 2007-2010 drop in global demand , is likely to regain momentum in the rest of the decade as tourists flow back in the South East Asia, especially from China.

This means that a proper development of the Kompong Som refinery could meet part of this growing fuel demand. N onetheless , we note that major obstacle s to the project could arise . In particular, anti-Chinese sentiment has already been expressed by the Cambodian population against the overwhelming investments and influence of the Chinese government. Similar unrests have led Myanmar to cancel a US$3.6bn Chinese-led dam project in September. This could be a sig n of things to come in Cambodia (see our online service, March 29 2012, 'Chinese Investment A Double-Edged Sword').

This article is tagged to:
Sector: Oil & Gas
Geography: Cambodia, Cambodia, Cambodia, Cambodia

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