Chinese energy giant Sinopec has announced plans to establish its first fully controlled overseas oil refinery in Sri Lanka, marking a significant milestone in its global expansion strategy.
The $3.7 billion project, formalized through an agreement with Sri Lanka’s Ministry of Power and Energy, represents the largest foreign investment secured under President Anura Kumara Dissanayake’s administration.
The state-of-the-art refinery, to be constructed in Hambantota, will have a capacity of 200,000 barrels per day (bpd), with a significant portion allocated for export.
The initiative is expected to stimulate Sri Lanka’s economic recovery and uplift the livelihoods of low-income communities, particularly in Hambantota.
The deal was signed during President Dissanayake’s visit to China, with senior officials from both nations, including Sri Lankan and Chinese ambassadors, attending the event.
Sinopec’s ambitious project follows a feasibility study approved by Sri Lanka in November 2023. The refinery is strategically aligned with Sinopec’s global goals, as China experiences a slowdown in domestic oil demand due to economic stagnation and the rise of electric vehicles.
The company’s move into Sri Lanka positions it in competition with India, which has proposed a fuel pipeline project to meet Sri Lanka’s energy needs. Currently, India’s state-owned Indian Oil Corporation (IOC) is Sri Lanka’s second-largest fuel supplier, following the Ceylon Petroleum Corporation.
This refinery forms part of Sinopec’s broader strategy to diversify its investments globally. Alongside a petrochemical project in Saudi Arabia, the Sri Lankan venture highlights Sinopec’s focus on leveraging its expertise and resources to expand internationally.
Such diversification comes after a significant decline in Chinese overseas oil and gas investments, which plummeted from $31 billion in 2012 to $344 million in 2023, according to data from the London Stock Exchange Group.
Sri Lanka’s economic crisis has underscored the need for foreign direct investment in critical infrastructure. Colombo has been eager to establish a refinery capable of meeting 20% of domestic fuel needs while exporting surplus to earn hard currency.
However, Sinopec has expressed concerns about the profitability of focusing solely on domestic sales. The company is considering either a 160,000 bpd plant or a phased approach with two 100,000 bpd refineries, prioritizing the production of gasoline and diesel.
Negotiations have reportedly been tense, as Sinopec seeks favorable terms to secure a larger share of the domestic fuel market. The Sri Lankan government, however, has maintained its requirements for refinery output.
Sinopec’s Hambantota refinery is set to become a cornerstone of Sri Lanka’s energy sector, ensuring greater energy security while providing much-needed foreign exchange. For Sinopec, this investment cements its status as a major player in the global energy market, even as domestic challenges in China drive its international expansion.
