Chinese state-owned enterprise Sinopec is actively seeking to enter the Sri Lankan market, where it faces competition from India’s oil and gas giant Indian Oil Corp.
Sinopec plans to establish its first wholly-owned refinery abroad in Sri Lanka as part of a broader strategy to adjust to decelerating domestic demand. Sources indicate that Sinopec is close to completing a feasibility study for a refinery at the Chinese-managed Hambantota port, having secured approval from Colombo last November.
The proposed $4.5 billion investment would be Sri Lanka’s largest foreign investment to date, according to China-based sources. Concurrently, India is pushing a rival project to build a fuel products pipeline to the island.
Sinopec aims to focus the refinery’s production on domestic consumption rather than exports, which contrasts with Sri Lanka’s preference for an export-oriented project. This puts Sinopec in direct competition with India, particularly with the Indian Oil Corp, which is the second-largest fuel supplier to Sri Lanka. The Chinese firm is also exploring additional investments, including one in Saudi Arabia, through a new investment division designed to use its refining expertise to expand internationally amid peaking oil demand in China.
Recent years have seen a dramatic drop in Chinese oil and gas sector investments overseas, plummeting from a peak of $31 billion in 2012 to just $344 million in 2023. This downturn follows the 2014-15 oil price crash and increased financial scrutiny by Beijing.
Sinopec is negotiating to increase its access to the import-dependent Sri Lankan market, a critical factor for its investment decision. Meanwhile, the Sri Lankan government maintains its requirement for the refinery to supply 20% of its fuel domestically to alleviate foreign exchange shortages.
Sinopec is considering building either one refinery with a capacity of 160,000 barrels per day or two smaller facilities in phases, focusing on gasoline and diesel production. Despite its strategic importance, Sinopec has yet to publicly outline its strategy in detail.
Competition between China and India over influence in Sri Lanka has heated up in recent years. In 2022, India provided approximately $4 billion in assistance during Sri Lanka’s severe financial crisis and has proposed several energy connectivity projects, including a major fuel pipeline and a subsea power line valued at $1.2 billion. Sri Lanka’s President Ranil Wickremesinghe has expressed a desire to enhance economic cooperation with India.
At the same time, China has invested billions in Sri Lankan infrastructure projects since 2010 under its Belt & Road Initiative, demonstrating a robust competitive dynamic between the two regional powers.
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