Sinopec’s $ 3.7 billion oil refinery investment in Sri Lanka

In January 2025, Chinese state-owned oil and gas giant China Petrochemical Corporation, commonly known as Sinopec, entered into an agreement with the Sri Lankan Government to expedite the construction of a state-of-the-art $ 3.7 billion oil refinery in the investment zone near Hambantota International Port (HIP), Sri Lanka. The agreement includes provisions to fast-track unresolved issues related to water access, land allocation, and taxes, marking the largest single foreign direct investment in Sri Lanka’s history.

Hambantota is located on the southeastern coast of Sri Lanka, with its port positioned just 10 nautical miles from one of the world’s busiest east–west shipping routes. This critical route, which connects the Suez Canal with the Strait of Malacca, transforms HIP into a strategic maritime gateway to South Asia and the Bay of Bengal. With an average of around 300 ships traversing the route daily, the area offers significant business opportunities for refuelling, crew changes, maintenance, logistics, and the procurement of provisions and medical supplies.

The refinery’s prime geographical location coupled with its proximity to the fully equipped deep-water Hambantota Port provides a substantial competitive advantage. This strategic positioning will not only facilitate the export of refined products but also help reduce transaction costs and shorten transportation times.

Headquartered in Beijing, Sinopec is a global petroleum and petrochemical conglomerate with a registered capital of 326.5 billion yuan. Its operations span the globe and focus on oil and gas exploration, production, refining, sales, and chemicals. As the largest supplier of oil and petrochemical products in China, the second-largest oil and gas producer, the world’s largest oil refiner by capacity, and the third-largest chemical company, Sinopec also boasts the second-largest network of gas stations worldwide. In 2023, the company ranked fifth on Fortune’s Global 500 List.

In 2023, Sinopec achieved an oil and gas equivalent production of 70.92 million metric tons, produced 37.9 billion cubic meters of natural gas, and processed 258 million tonnes of crude oil. The company reported a net income of 60.5 billion yuan (approximately $ 8.37 billion) for the year, further cementing its leadership in the industry.

Diversify Sri Lanka’s economic portfolio

The new refinery will have a processing capacity of 200,000 barrels per day, with a significant portion of its output earmarked for export. This export-oriented approach is designed to diversify Sri Lanka’s economic portfolio and boost foreign exchange earnings. By reducing reliance on imported refined products and generating export revenue, the refinery is expected to stabilise the country’s trade balance and enhance its financial resilience. The resulting influx of foreign currency will also grant the Government greater flexibility to invest in critical sectors such as infrastructure, healthcare, and education, driving long-term economic growth.

Moreover, the refinery will provide a more stable and reliable fuel supply for Sri Lanka by reducing dependency on imported petroleum products. This self-sufficiency mitigates the risks associated with global oil price volatility—such as sudden cost spikes and economic instability—and safeguards against supply disruptions due to geopolitical tensions, natural disasters, or logistical challenges in the global oil market. A consistent and secure fuel supply will support uninterrupted industrial operations, transportation, and energy needs, further enhancing national energy security.

The project is expected to generate substantial direct and indirect employment opportunities. Direct roles will include positions in refinery operations, maintenance, and management, while indirect jobs will arise in supporting industries such as logistics, transportation, and services. Beyond job creation, the project will serve as a platform for skill development, offering local workers hands-on experience and technical expertise in oil refining and related fields. Over time, this upskilling will enhance employability and contribute to the development of a more skilled labour pool, attracting further investment and spurring regional economic growth.

Additionally, the refinery project is set to catalyse significant upgrades to Hambantota Port, transforming it into a regional hub for oil storage and distribution. Enhanced port facilities will increase its capacity to handle large-scale maritime operations, attracting international shipping lines and boosting trade activities. This development, along with the likely emergence of ancillary industries such as petrochemicals, logistics, and manufacturing, will create a robust industrial ecosystem that diversifies the economy and reduces reliance on a narrow range of sectors.

The refinery project sends a strong signal about Sri Lanka’s openness to foreign investment and its commitment to facilitating large-scale infrastructure projects that meet international standards. By partnering with a global giant like Sinopec, Sri Lanka is enhancing investor confidence and potentially attracting further foreign direct investment across sectors including energy, manufacturing, tourism, and technology.

Key node in global maritime trade routes

Strategically, the project strengthens Sri Lanka’s role as a key node in global maritime trade routes, especially given its proximity to major shipping lanes between the Suez Canal and the Strait of Malacca. Economically, it positions the country as a regional hub for energy production, storage, and distribution, bolstering geopolitical leverage and fostering stronger partnerships with global powers and neighbouring countries. Furthermore, the collaboration with China opens the door to additional investments and technology transfers in infrastructure development, renewable energy, and advanced manufacturing, which can modernise Sri Lanka’s industrial base and drive long-term growth.

Sri Lanka currently imports all of its oil and petroleum products, making it highly vulnerable to global oil price shocks. In 2022, an unprecedented financial crisis and a shortage of foreign exchange reserves led to a critical fuel shortage. While the country requires 110,000 barrels per day of oil products, its Sapugaskanda oil refinery produces only around 38,000 barrels per day, the remainder being met through imports. This heavy reliance on imported refined products places considerable pressure on foreign exchange reserves.

Like most of its South Asian neighbours, except for India, Pakistan, and Bangladesh, Sri Lanka lacks domestic refining capacity. Even in countries with refineries, such as Pakistan and Bangladesh, local production falls short of meeting refined oil demand. The Sinopec investment is expected to play a key role in ensuring energy security and supply stability for Sri Lanka. It will also enable the country to export refined oil products to South Asia, the Bay of Bengal, and beyond. Additionally, the strategic location of Hambantota Port just 10 nautical miles from one of the busiest sea routes and on the traditional Silk Route further enhances its ability to supply locally refined marine fuels to vessels passing by daily.

The partnership with Sinopec is a significant boost for the Sri Lankan oil and gas industry and has the potential to position the country as a petroleum hub in South Asia and the Bay of Bengal. Sri Lanka’s historical role as an important stop on the Maritime Silk Road and its key position in China’s Belt and Road Initiative (BRI) exemplified by flagship projects such as Hambantota Port and Colombo Port City underscore the nation’s strategic importance. The new refinery project, aligned with the high-quality vision of the BRI, is expected to bring mutually beneficial results and brighter prospects for Sri Lanka’s economic future.

(The writer currently serves as a Director of BRISL, an independent and pioneering Sri Lankan-led organisation, with strong expertise in BRI advice and support. He can be contacted at: [email protected].)