Doubtlessly, this strategic move flags Sinopec’s ambition to offset declining growth in China’s oil demand and move capacity in emerging markets in developing economies. Sri Lanka figures prominently in China’s Maritime Belt & Road Initiative which is designed to give Beijing control over crucial Indian Ocean lanes.

Sinopec’s refinery project was geared more towards meeting Sri Lanka domestic needs, contrary to Sri Lanka’s export-oriented preference, intensifies the rivalry with India. 

Despite India’s significant fuel supply role in Sri Lanka, Sinopec’s initiative signals a strategic contest for market dominance.

Driven by a newly launched investment arm, Sinopec is prioritizing global expansion, with Sri Lanka and Saudi Arabia as focal points. As China’s oil demand approaches saturation amid economic deceleration and rising electric vehicle adoption, Sinopec seeks to leverage its expertise and financial strength in overseas ventures.

This endeavor represents a departure from previous trends in Chinese oil investments abroad, which dwindled post-2015 due to oil price fluctuations and heightened financial scrutiny by Beijing.

 Sinopec’s meticulous planning includes finalizing plant specifications and negotiating market access terms with Colombo, that was critical in influencing its investment decision.

Sinopec’s foray into Sri Lanka’s energy landscape underscores the evolving dynamics of global oil investments, as major players adapt to shifting market realities and geopolitical rivalries.

This move, which is a major change in Sinopec’s foreign strategy, is perceived as a reaction to China’s slowing increase in demand. 

The proposed investment, estimated at $4.5bn by Sri Lankan officials, would be the country’s largest-ever foreign investment.  

While the initiative is commercially driven, it also places Sinopec in competition with India, which is promoting a rival plan to build a fuel products pipeline to Sri Lanka.  

State-owned Indian Oil Corporation is currently the second-largest fuel supplier to Sri Lanka, following government-owned Ceylon Petroleum.  

Sinopec’s investment in Sri Lanka, along with another project in Saudi Arabia, is part of a broader effort to leverage the company’s expertise and financial resources for global expansion.  

This comes as oil demand in China approaches its peak amidst economic slowdown and the rise of electric vehicles.  

The company’s international investment strategy has evolved following a decline in Chinese oil and gas investments abroad, which dropped to $344m in 2023 from a record $31bn in 2012, the report said, citing London Stock Exchange Group data. 

In negotiations with Colombo, Sinopec is seeking greater access to the import-reliant Sri Lankan market, a critical factor for its final investment decision.  

Sri Lanka, facing a foreign exchange crisis, desires a refinery that would satisfy 20% of its domestic fuel needs and allow for exports to generate hard currency.  

However, Sinopec believes focusing on domestic sales could be more profitable. 

The company is considering constructing either a 160,000 barrels per day (bpd) refinery or two phased 100,000bpd plants, primarily producing gasoline and diesel.  

Sinopec has been requesting more accommodating conditions for the project’s domestic marketing share for several months now, but Colombo has not agreed. 

Sinopec declined to comment and requests for comments from India’s foreign ministry and Indian Oil Corporation did not elicit a response, the publication said.

Sri Lanka’s power and energy minister, Kanchana Wijesekera, has indicated that the government is maintaining its stipulation for the refinery’s output and expects Sinopec to sign an investment agreement by June. 

Sinopec’s Hambantota project is a top priority, alongside a significant investment in expanding a refinery into a petrochemical complex at Saudi Arabia’s Yanbu port, in partnership with Saudi Aramco.