Oil Refining And Refinery Projects In China
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Introduction
- As part of its goal to diversify crude oil import sources and meet oil product demand, China has steadily augmented its refining capacity, which climbed to more than 13 million bbl/d in 2013.
- China is steadily expanding its oil refining capacity to meet its strong demand growth and to process a wider range of crude oil types. The country now ranks behind the United States and the European Union in amount of refining capacity. China's installed crude refining capacity was an estimated 13 million bbl/d by the end of 2013, around 890,000 bbl/d higher than in 2012, according to FGE. These new refineries and expansions are expected to ramp up refinery runs in 2014 as crude oil supply becomes available and product demand rises in certain regions. Some of the new refineries are designed to accept all grades of crude oil, making Chinese refineries a strong regional competitor. The country not only plans to meet its swiftly growing domestic demand but also to export products within the region. Various sources estimate that China will add another 500,000 bbl/d of net capacity in 2014. FGE anticipates China adding 4.4 million bbl/d of net capacity between 2013 and 2020, pushing total capacity to over 17 million bbl/d.
- Utilization rates have decreased to about 75% in the past year as Chinese companies continue to build refining capacity against a backdrop of slower oil demand growth in China and around the world. Some new refineries have encountered delays in startups over the past two years, as the refining sector deals with the current overcapacity.
- Recent heavy pollution in certain areas of China prompted the NDRC to adopt stricter petroleum product specifications that are intended to lower sulfur emissions from gasoline and diesel use. The agency requires refineries to implement the equivalent of Euro V standards for transportation fuels nationwide by the end of 2014 and Euro V standards by the end of 2017. Shanghai and Beijing are already supplying only fuels that meet Euro V standards. Sinopec and CNPC are investing in refinery upgrades to meet these emissions standards, but the small independent refineries are facing economic challenges of additional cost. Also, in 2013, the Ministry of Environment put a temporary ban on the approval of new refineries and expansion of current refineries in reaction to the NOCs missing emissions targets in 2011 and 2012. This ban could postpone some of the refineries proposed after 2015.
- For a full list of China's refineries and projects see Asian Refinery Projects and Asian Refineries
China's notable refinery projects and expansions
- Yangzi Petrochemical Refinery Expansion Project
- Sinopec
- 160,000 (addition of 90,000 bbl/d after removing 70,000)
- 2014
- Caofeidian Refinery Project
- Sinopec
- Caofeidian/Tianjin
- 240,000 bbl/d
- 2015
- Construction;
- Plans to process crude oil from Saudi Arabia
- Guangdong Zhanjiang Refinery Project
- Sinopec
- Guangdong/Zhanjiang
- 300,000 bbl/d
- 2015 Construction;
- Developing with Kuwait Petroleum (30%) and TOTAL (20%)
- Zhenhai Zhejiang Refinery Expansion Project
- Sinopec
- Zhenhai/Zhejiang
- 350,000
- 2016
- Expansion; Construction
- Hainan Refinery Expansion Project
- Sinopec
- Hainan
- 100,000
- 2015
- Environmental approval received February 2013
- Luoyang Company Refinery Expansion Project
- Sinopec
- Luoyang
- 160,000
- 2016
- Expansion
- Sichuan Refinery Project
- CNPC
- Pengzhou
- 200,000
- 2013
- Trial operations Q4
- Urumqi Petrochemical Refinery Expansion Project
- CNPC
- Urumqi
- 120,000
- 2014 - Q1
- Construction; Doubles the existing capacity to 240,000 bbl/d
- Huabei Petrochemical Refinery Expansion Project
- CNPC
- Huabei
- 100,000
- 2015
- Expansion; Construction
- Yunnan Refinery Project
- CNPC
- Anning/Yunnan
- 200,000
- 2016
- Construction; Plans to process oil from Saudi Arabia and Kuwait via the crude oil pipeline from Myanmar;
- JV with Saudi Aramco (39%) and local company (10%)
- Jieyang Nanhai Refinery Project
- CNPC
- Guangdong/Jieyang
- 400,000
- 2017
- Construction; JV with PDVSA (40%)
- Karamay Petrochemical Company Refinery Expansion Project
- CNPC
- Karamay
- 100,000
- 2017
- Expansion; Processes bitumen
- Chongqing Refinery Project
- CNPC
- Chongqing
- 200,000
- 2017
- Receive oil from China-Myanmar pipeline
- Taizhou Zhejiang Refinery Project
- CNPC
- Jiangsu/ Taizhou
- 400,000
- 2017
- NDRC approval; Environmental approval pending; JV with Qatar and Shell
- Lanzhou Lianhua
- CNPC
- Lanzhou Lianhua
- 200,000
- 2017
- N/A
- Tianjin Refinery Project
- CNPC
- Tianjin
- 320,000
- 2020
- Planning; FID expected in 2017
- JV with Rosneft-49%
- Shangqiu/Henan
- CNPC
- Shangqiu/Henan
- 200
- 2020
- N/A
- Ningbo Refinery Project
- Sinochem
- Ningbo
- 240
- 2020
- Pending approval
Sector Development
- The oil refining sector has undergone modernization and consolidation in recent years, shutting down dozens of smaller, independent refineries (commonly known as teapots). These smaller refineries account for roughly 20% of total refinery capacity.
- The NDRC issued guidelines in 2011 to eliminate refineries smaller than 40,000 bbl/d by the end of 2013 in an effort to encourage economies of scale and energy efficiency measures.
- Several of these local refineries, mostly located in the eastern Shandong province, plan to expand their capacity or consolidate with larger firms to avoid closing. FGE estimates these independent refineries will add about 240,000 bbl/d in the last quarter of 2013.
Pricing
- Domestic price regulations for petroleum products resulted in revenue losses for Chinese refiners, particularly small ones, in the past few years when international oil prices were high. This price differential squeezed refineries' profit margins, leading to reduced processing rates at some independent refineries.
- The oil price reforms recently implemented by the NDRC have reduced some of these revenue losses and allowed refiners to be more responsive to domestic demand and global markets.
Trade
- Although China remains an overall net oil product importer, the country became a net diesel fuel exporter in mid-2012 mostly to other Asian countries as the pace of growth in domestic oil product demand moderated. According to FGE, diesel is a key driver of China's oil products demand and consisted of 35% of total oil products demand in 2012.
- The NDRC issues export quotas on oil products to NOCs to ensure that domestic demand for major oil products is met, with the possibility to extend the quotas if supply exceeds demand, as happened at the end of 2013. In 2012, China imported approximately 1 million bbl/d and exported 575,000 bbl/d of petroleum products. As refining capacity expands beyond 2013, exports of products, particularly gasoline and diesel, are likely to grow.
NOC participation
- Sinopec and CNPC are the two dominant players in China's oil refining sector, respectively accounting for 41% and 30% of the capacity in 2013, according to FGE. Sinopec, which operated nearly 5.5 million bbl/d of total oil processing capacity in China by 2013 and holds a significant refining presence in the coastal and southern areas of China, is the secondlargest oil refiner in the world. Sinopec relies heavily on imported crude oil for its refineries, and most of the NOC's refineries are configured to handle crude oil higher in sulfur and acidity.
- The other NOCs are now building refineries and pipelines to compete with Sinopec's strong presence in China's downstream markets. CNPC is expanding its downstream presence in southern China, and started trial operations of its 200,000-bbl/d Pengzhou refinery in Sichuan Province at the end of 2013. CNOOC entered the downstream sector through the commissioning of the company's first refinery, the 240,000-bbl/d Huizhou plant, in 2009. The NOC anticipates expanding this refinery by 200,000 bbl/d in 2015. Sinochem commissioned its first major refinery, Quanzhou, at the end of 2013.
- Petrochina Refineries
- Sinopec Refineries
- National oil companies from Kuwait, Saudi Arabia, Russia, Qatar, and Venezuela have also entered into joint ventures with Chinese companies to build integrated refinery and petrochemical projects and gain a foothold into China's downstream oil sector.
Overseas Refining Investment by Chinese Companies
- Chinese companies have ventured into overseas refining opportunities. In addition to its strong domestic presence, Sinopec is gradually investing in refining assets overseas, and the company purchased a 37.5% stake in Saudi Arabia's 400,000-bbl/d Yanbu Refinery Project, set to beginning processing heavy crude oils by the end of 2014.
- Sinopec recently entered into JV partnerships for two large refineries, Mthomobo in South Africa and Premium I Refinery Project in Brazil. CNPC branched out to acquire refinery stakes in other countries to move downstream and secure more global trading and arbitrage opportunities.
- The company's purchases of refinery shares in Singapore and Japan a few years ago are cases where CNPC was looking for a share in the region's refining opportunities. Also, CNPC has invested in refineries and pipelines in African countries in exchange for exploration and production rights.
page revision: 10, last edited: 06 Jun 2014 08:11