The nation's biggest oil producer, PetroChina got the government's go-ahead to build an ethylene plant worth over 20 billion yuan (US$2.5 billion) in the south-western region, and is pondering a refinery nearby, the company said yesterday.

The top economic policy planning agency, the National Development and Reform Commission (NDRC), gave the green light to PetroChina, allowing it to build a 800,000 ton-per-annum ethylene cracker in Chengdu, capital city of southwest China's Sichuan Province, Bao Guangjun, a manager at the oil giant's refining and sales subsidiary confirmed yesterday.

PetroChina submitted the Chengdu ethylene proposal to Beijing in May, and expects the project to be completed by 2010.

The Beijing-based oil producer will take a 51 percent stake in the new plant, while the remaining 49 percent goes to a local firm Chengdu Petrochemical Co Ltd, a project company established and owned by the local government of Chengdu.

The ethylene project will be the biggest industrial investment in the entire Sichuan Province and the second-largest ethylene production facility in the western region behind another cracker at Dushanzi of Xinjiang Uygur Autonomous Region, market observers said.

The Dushanzi refinery, also owned by PetroChina, is building up its ethylene production capacity to 1 million tons per year, using oil piped from neighbouring Kazakhstan through a newly opened cross-border pipeline.

Bao said the new ethylene plant at Chengdu might secure feedstock from its Lanzhou refinery in northwest China's Gangsu Province, which is doubling its refinery capacity to 10 million tons a year.

The PetroChina official also disclosed that the group is considering building a new refinery near the Chengdu ethylene cracker.

"The new refinery has yet to be approved by the central government," he said, without further commenting on the size of the new refining facility.

Domestic oil majors including PetroChina, Sinopec and China National Offshore Oil Corp (CNOOC), have massively mapped out investments to scale up their refining petrochemical production capacity.

PetroChina has plans to upgrade oil refining and petrochemical production bases in Fushun and Dalian in the northeast, and Lanzhou and Dushanzi in the northwest. Each of the four bases is designed for an annual capacity of at least 10 million tons of crude refining.

"PetroChina will speed up the development of the refining and petrochemical businesses within the next 5 to 10 years to meet the soaring demand in the domestic market as the economy booms," Wu Guanjing, director of the Hong Kong-listed oil company's refining and chemical research and development centre, has said.

Sinopec and BASF, the world's top chemical maker by sales, said they would expand their 50-50 chemical venture capacity at Nanjing by as much as 25 percent to meet growing demand, which now is able to produce 1.7 million tons of petrochemical products each year.

China last year consumed 16 million tons of ethylene, and domestic production stood at 6.27 million tons for the same period, of which Sinopec contributed 4.25 million tons, said Wang Jiming, vice-president of Asia's largest oil refiner Sinopec.

That means China currently relies on imports for more than half of its ethylene consumption.