By Winnie Zhu

 Dec. 4 (Bloomberg) -- China Petroleum & Chemical Corp. and Kuwait Petroleum Corp. received government approval to start initial work on an oil refinery and chemical project in southern China.

The proposed ethylene plant in Nansha in the province of Guangdong will produce 1 million metric tons a year of the chemical, Sinopec, as China Petroleum is known, said in its online newsletter today, without giving the refinery size. The approval allows the partners to start feasibility studies on the project, said Sinopec spokesman Huang Wensheng.

China, the world's fastest-growing major economy, wants to increase oil-processing capacity by 25 percent by 2010 to meet rising consumption of fuels and petrochemicals. The Nansha complex, with a planned investment of $5 billion, would be the largest joint venture in China, exceeding the nearby Nanhai petrochemical facilities built by Royal Dutch Shell Plc and China National Offshore Oil Corp., the central bank said May 30.

``It's Sinopec's ambition to strengthen its play in the southern China market, where energy demand growth is always massively outpacing supply,'' Qiu Xiaofeng, an oil analyst with China Merchants Securities Co., said in Shanghai today.

The Nansha plant will be able to process 12 million tons of crude oil a year and the ethylene unit will have an annual capacity of between 800,000 tons and 1 million tons, Wang Tianpu, president of Sinopec, said in August.

Guangdong Hub

The provincial government of Guangdong, the nation's manufacturing hub, wants to develop the province into a major petrochemical production center for Asia, the Chinese central bank said in May.

Guangdong accounts for 8 percent of the nation's total energy use and 18 percent of total fuel demand in 2005, according to the government Web site.

Sinopec will halt expansion work on the ethylene unit at its Guangzhou refinery, close to the Nansha complex, according to today's statement. The existing 200,000 ton-a-year ethylene unit will be closed after the Nansha plant starts operation, it said. Sinopec had planned to increase the Guangzhou refinery's annual ethylene capacity fourfold to 800,000 tons.

The Chinese refiner and its partners plan to start operating the Nansha plants in 2010, parent company China Petrochemical Corp. said in July 2006.

Sinopec's Wang said Aug. 10 that the company was in talks with Kuwait Petroleum, Shell and Dow Chemical Co. to develop the Nansha project. ``The talks are still going on,'' Huang said today.

Saudi Aramco

Sinopec has a separate venture in southern China with Saudi Aramco and Exxon Mobil Corp. The project in Fujian, the first Chinese refining and marketing venture with foreign partners, was agreed in March after more than a decade of talks.

The three companies will expand a crude oil refinery to about 240,000 barrels a day from 80,000 barrels a day, and add four petrochemicals units. The venture, which will include 750 gas stations, will mostly process crude from Saudi Arabia.

China may use 25 percent of global chemical output by 2015, Exxon Mobil said May 25.

To contact the reporter on this story: Winnie Zhu in Shanghai at .