Sinopec’s Pipeline Blast May Hurt Reform, Safety Efforts

An explosion at a China Petroleum & Chemical Corp. oil pipeline and the nation’s deadliest spillage since at least 2005 may threaten the government’s efforts to lure investment to state-controlled industries as President Xi Jinping called for improved industrial safety.

The Nov. 22 accident at the Huangdao district in the eastern city of Qingdao killed at least 52 people, Xinhua News Agency reported. Sinopec, as China Petroleum is known, said yesterday it was still investigating the cause of the blast, which happened after crude oil leaked from a 27-year-old pipeline into Qingdao’s municipal rainwater pipe network.

Xi, who visited relatives of the dead and injured today, vowed to boost work safety and increase inspections, China Central Television reported. China’s drive to build infrastructure serving its growing cities has often come at the cost of safety. More than 27,700 people were killed or went missing at workplaces in the first half of this year, according to the State Administration of Work Safety.

“The Sinopec pipeline explosion will surely see a prolonged investigation and a safety review with the short-term impact for the firm also dependent on how quickly the oil giant cleans up the leak,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “The ever-growing refining capacity and oil infrastructure in China had certainly seen a rising number of incidents, and safety standards will be reviewed.”

Reform Efforts

China this month pledged to allow more private investment in state-controlled industries as part of the biggest package of reforms since the 1990s. Oil and energy companies will benefit from the changes as a Communist Party document made clear statements about moving back to market-driven policies, Erwin Sanft, the head of China and Hong Kong equity research at Standard Chartered Plc, said in a Nov. 18 interview.

China uses its big three oil companies, of which PetroChina Co. is the largest, to control domestic fuel prices and secure energy supplies from overseas to meet the burgeoning needs of an economy that expanded 7.7 percent last year.

Sinopec has a “super-large” refining and petrochemical complex at Qingdao in Shandong province, according to the company’s website. It has a crude distillation capacity of 10 million metric tons a year and produces more than 7 million tons of gasoline, kerosene and diesel a year. The oil pipeline is 249 kilometers (155 miles) in length.

“Given current information, the result will probably be reduced refinery runs, impacted imports and continued de-stocking of inventories,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd. in London. “Qingdao is a hugely important Chinese oil port.”

Environmental Issue

At least 32 cleaning and fishing vessels and about 10 tons of dispersant were being used to clean up the leak, which spread across 3,000 square meters in Jiaozhou Bay and the Yellow Sea, the Qingdao Municipal People’s Government Information Office said on its microblog. Most of the crude oil around Jiaozhou Bay has been cleared, Sinopec said.

All efforts should be directed at searching for survivors, treating the injured, controlling any combustible source and closely supervising the surroundings, Premier Li Keqiang said in a statement on the central government website. State Councilor Wang Yong was sent by President Xi Jinping to the accident site to supervise disaster relief efforts, the State Council, or cabinet, said in a separate statement.

A photo on the Sinopec group’s website showed people clustered together staring at thick, grey plumes of smoke filling the sky behind tall white buildings. The incident led to stoppages in electricity and water in nearby areas, with about 18,000 people being evacuated, the Qingdao government said.

Rescue Operation

Sinopec President Li Chunguang and Chairman Fu Chengyu were at the location and coordinating rescue efforts, the company said in its official microblog.

“We are deeply sorry for what has happened in Qingdao and express our sincere condolences to the victims and their families,” Sinopec chairman Fu said on the microblog. “We will do our very best to assist in rescue and post-disaster efforts and work with government investigators to find out the cause.”

Lv Dapeng, a spokesman for Beijing-based Sinopec, said today that operations at the Qingdao refinery will have “some disruption,” with imports being affected. The company was still investigating the cause of the accident and overall operations won’t be impacted significantly because there are still stocks of crude and fuel at the refinery.

Some port operations may also have been affected, Shanghai-based energy consultancy ICIS C1 reported, citing an unidentified Qingdao port official. All the oil tankers at Huangdao port had departed from their berths, with port operations expected to resume within one day at the earliest, according to C1.

Profit Increase

Shares of Sinopec rose 0.6 percent to 5.05 yuan at the Nov. 22 close in Shanghai, paring this year’s loss to 5.1 percent. The company reported a profit increase in the third quarter as a new policy helped it and PetroChina to raise fuel prices, foreshadowing Premier Li’s plan to reduce state intervention in the economy.

The pipeline began leaking oil at about 3 a.m. and emergency crews were dispatched to conduct repairs when the fire started in Qingdao’s development zone, according to a report from Xinhua on Nov. 22. Qingdao is home to China’s fourth-largest port and Tsingtao Brewery Co. The city is popular with travelers seeking a beach vacation and seafood.

Sinopec’s complex in Qingdao also produces liquefied petroleum gas, polypropylene and styrene with a total output of more than 2 million tons a year. Refined products are sold in the north, northeast and southeastern coastal regions of China, according to the website.

Similar Incidents

The blaze is one of a string of similar accidents as China struggles to improve workplace safety. In June, a fire at a poultry plant in the northeastern Chinese province of Jilin killed 120 people in the nation’s deadliest blaze in 13 years.

A fire at PetroChina’s Dalian oil complex also killed two people in June, Xinhua reported at the time. The blaze was a “serious accident” and had a “severely negative impact” on the group, according to a statement on the website of parent China National Petroleum Corp.

— With assistance by Liza Lin, Benjamin Haas, and Guo Aibing

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