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Sinopec to Own Stake in Kitimat Project?

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Reportedly, China Petroleum and Chemical Corporation (SNP - Free Report) is discussing the purchase of a minor stake in Kitimat liquefied natural-gas (LNG) project with U.S. energy firm Apache Corp. (APA - Free Report) . China Petroleum and Chemical Corporation, also known as Sinopec, is one of the largest petroleum and petrochemical companies in Asia.

Details relating to the purchase have not been disclosed. Moreover, Sinopec’s management has not sanctioned the investment yet. However, a source revealed that Sinopec’s stake investment will be utilized to fund the LNG project.

The Kitimat LNG development includes undeveloped shale assets covering roughly 644,000 acres of land, pipelines and a processing plant of LNG. Apache owns 50% of the project whereas Chevron Corporation (CVX - Free Report) , U.S. energy behemoth, holds the rest.

China is now consuming roughly 5% natural gas out of its total primary energy consumption. Government of China is focusing to increase it to 10% by 2020. However, China is not in a position to support the increased gas consumption through domestic production. To tap this opportunity, Sinopec is considering the investment in the Kitimat project.   

Sinopec with its head office in Beijing, China, is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. The company is also the largest producer and distributor of petrochemicals in the nation.

Sinopec has been exploring expansion and acquisition opportunities offshore and abroad to reduce its exposure to mature domestic markets. However, competition from domestic and international peers, as well as the possibility of time-consuming government deregulation and internal company restructuring, make near-term progress difficult.

Sinopec currently holds a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

However, one can consider a better-ranked energy player like SM Energy Company (SM - Free Report) that offers value. The stock sports a Zacks Rank #1 (Strong Buy).

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