Next Phase for China’s Refining Industry (I)

By Zhu He

Refining capacity grew rapidly, diversified market structure formed and developed, and geographic layout has been optimized.
   Since entering the 21st century, China’s petroleum refining industry has grown rapidly through innovation, expansions and new plants, coupled with the State’s actions of deepening reform, widening openness and more responsive adjustments. China’s refining capacity has reached 325 million tons by the end of 2005, up 3.2% a year compared with 277 million tons in 2000. And when the 11th Five-Year Plan period ended (2010), refineries had pushed their capacity to 504 million tons, soaring 9.2% a year during the period. However, the growth rate has decelerated since 2011, when the refining capacity rose just 5.2% over 2010, or 26.5 million tons, to 540 million tons. In spite of the deceleration, China – enjoying the fastest-growing refining capacity in the world since stepping into the new century – has become the world’s second largest oil refiner after the United States.
   The domestic refining market structure has changed. China has established a diversified pattern, which takes Sinopec and PetroChina as leading forces and incorporates other state-owned enterprises like China National Offshore Oil Corporation (CNOOC), ChemChina and China North Industries Group, local refineries such as Shaanxi Yanchang Petroleum Group, private companies, and foreign companies like TOTAL, Exxon Mobil, Saudi Aramco. In 2011, Sinopec had 247.2 million tons or 45.8% of the total refining capacity; PetroChina 169.3 million tons, 31.4%; CNOOC 27 million tons, 5%; and the remaining 96 million tons or 17.8% was owned by local refineries. As of the end of 2011, foreign rights in the refining capacity had reached 8.25 million tons, accounting for 1.5%.
   While seeing rapid development, China’s oil refining industry adjusted and optimized the geographic distribution of plants according to the market, improving its support of high consumption regions. As major oil consumption areas, Bohai Rim, Yangtze River Delta and Pearl River Delta boasted refining capacity of 367 million tons in 2011, accounting for 68% of the total (Bohai Rim, 210 million tons or 39%; Yangtze River Delta, 82 million tons or 15%; and Pearl River Delta, 75 million tons or 14%). In 2010, south China – an important consumption area required to bring in oil products in large quantities previously due to inadequate local refining capacity – held 5.4% more of the total capacity than in 2005; northeast China, with overcapacity, decreased its ratio by 5.8%; the northwest region, which provides oil products to other areas because of low consumption, saw a decline in relative capacity though it still extended its refining ability; with the implementation of rejuvenation programs, north and central China have built up a larger share in China’s refining capacity, up 2.6% and 0.08% respectively. In southwest China, where refining capacity is small, two large refineries are being built which will be productive in the near future.

Table 1 Development of China’s Refining Industry in 10 Years (Million Tons)

    2001    2011    Growth Times
Total Refining Capacity    281    540    0.92
Processing Volume of Crude Oil    211    448    1.12
Output of Gasoline, Kerosene and Diesel    124    267    1.15
Consumption of Gasoline, Kerosene and Diesel    115    263    1.29
Import/Export Volume of Gasoline,     Net Export 4.27    Net Import 4.80    
    Kerosene and Diesel
Oil Standard    EuropeⅠ    Europe III
Number of 10 Million-ton Refinery    4    20    4
Capacity Share of 10 Million-ton Refinery in Total     17.3    46    1.66
    Refining Capacity/%
Capacity Held by Foreign Firms and Number     2.24(1)    8.25(3)    2.68
    of Foreign Firms
Number of Oil Station for Sino-foreign JV     Around 50    Over 2500    Over 49
    or Wholly-owned by Foreign Firms


Scale increased, oil refining and chemical tended to become integrated, the industry has been clustering, base construction has been promoted all along, and intensification has been improving.
   Since 2000, China’s refineries have seen growth in both capacity and supporting devices. Sinopec and PetroChina improved their world ranking to the second and fifth places in 2011 from the fourth and eighth places in 2000, and some of their refineries are now world-class scale. For example, Sinopec Zhenhai Refining & Chemical Company exceeded a refining capacity of 20 million tons in 2007 (increasing to 23 million tons nowadays), and Dalian Petrochemical Corporation has enjoyed a refining capacity of 20.5 million tons since 2008. By the end of 2011, the average capacity of PetroChina and Sinopec refineries had jumped to 7.06 and 6.51 million tons from 5.22 and 4.53 million tons in 2005.

Table 2 China’s Consumption of Oil Products from 2000 to 2011 (million ton)

Year    2000    2005    2010    2011    YoY Growth %
Gasoline    35.05    48.53    71.58    76.4    6.7
Diesel    67.74    109.73    156    167    7.8
Kerosene    8.7    10.77    17.56    18.27    6.4
Total    111    169    245    262    



Sinopec’s three refinery concentration zones – Bohai Rim, Yangtze River Delta and Pearl River Delta – have taken initial shape, and 10 million-ton-plus refineries contribute 58% of its total capacity. With the help of reconstruction and extension, Sinopec Maoming Company will increase its refining capacity to 25.5 million tons, and is like to become a world-class refinery in a short term. PetroChina has established eight refining bases with individual capacity exceeding 10 million tons: PetroChina Dalian Petrochemical Company, West Pacific Petrochemical Co., Ltd. Dalian, PetroChina Fushun Petrochemical Company, PetroChina Jilin Petrochemical Company, PetroChina Liaoyang Petrochemical Company, PetroChina Lanzhou Petrochemical Company, PetroChina Dushanzi Petrochemical Company and PetroChina Guangxi Petrochemical Company. Currently China has twenty 10 million-ton class refining bases, increasing from only eight in 2005 and accounting for 45.9% of the State’s refining capacity. Among them, 14 are equipped with ethylene units and play important role in the synergistic effect of industry chains as well as in the radiation effect of industry clusters. At the same time, refining units scale grew. For example, atmospheric and vacuum distillation units boast the maximum capacity of 12 million tons per year, hydrocracking units, 4 million t/a, and delayed coking units, 4.2 million t/a.
   Installation structures were adjusted continuously; the adaptabilities of deep processing, fine processing and different crude oils’ processing saw unceasing improvement; energy conservation and emission reduction has been promoted all the time.

Table 3 China’s Output of Oil Products from 2000 to 2011 (million ton)

Year    2000    2010    2011    YoY Growth %
Gasoline    41.34    76.75    81.3    5.8
Diesel    70.8    158.8    167    7.4
Kerosene    8.72    17.15    18.67    6.5
Total    120    253    267    7.1


The structure of China’s refining devices has been adjusting, and the adaptabilities of deep processing, finish machining and different crude oils’ processing have been improved all along to cope with soaring international oil prices, reduce refining cost, promote the processing capacity of sour crude, meet more strict quality standards on domestic oil products, increase profits, and strengthen international competitiveness of refineries. The ratio of catalytic cracking technology in the crude primary processing slid from 36.1% in 2000 to 32.5% in 2005, further to 30.25% in 2011. The use of hydrogenation units for producing clean oil products has soared and become one of the main refining devices in China. The ratio of hydrofining technology in the primary processing of crude oil rose from 15.6% in 2000 to 22.5% in 2005, and further to 32.2% in 2011. While the delayed coking technology for processing heavy oil has taken a larger share in primary processing, up to 14.3% in 2011 from 7.7% in 2000. China is capable of processing over 80 million tons of sour crude and more than 20 million tons of high-acid crude oil per year. At present, China has generally mastered modern refining processes, established 10 million-ton class refineries with its own technologies, and enjoyed core and special technologies with proprietary intellectual property rights, some of which are exported overseas.
   As for energy conservation and emission reduction from 2011 to 2015, both Sinopec and PetroChina have already met their goals ahead of schedule. Their average compound commercial rate increased 1.6% in 2010 compared with that in 2005. And the compound energy consumption for refining decreased by 12.8 kg of standard oil per ton. In 2010, Sinopec reduced 18% of COD discharge compared with the level of five years ago, while SO2 discharge fell 35% year-on-year; PetroChina made its COD discharge fall 33% year-on-year, and decreased the SO2 discharge by 13% year-on-year.
   Through overcoming adverse factors at home and abroad, both the processing volume of crude oil and oil products output have been kept growing, which satisfied domestic demand.
   Thanks to the thriving economy in the new century, China has seen significant growth in many aspects like auto sales volume, transportation, oil product consumption, and consumption of gasoline, kerosene and diesel, up from 111 million tons in 2000 to 169 million tons in 2005, further to 244.6 million tons in 2010, increasing 1.2 times with an average annual growth rate of 7.4% in the 11 years. In 2011, the State consumed 263 million tons of gasoline, kerosene and diesel, up 7.5% year-on-year but down in growth rate. Table 1 showed the consumption of gasoline, kerosene and diesel from 2000 to 2011. It can be seen from the table that diesel consumption grew most rapidly, then gasoline, and finally kerosene.
   Benefiting from the surging demand, China’s refineries have overcome soaring international prices, oil price inversion and the global financial crisis, pushing crude processing volume as well as oil products output to record highs. The processing volume of crude oil soared from 210.8 million tons in 2000 to 286.2 million tons in 2005, 422.8 million tons in 2010, and 448 million tons in 2011, rising 112% in the 12 years with an average annual growth rate of 6.5%. The output of gasoline, kerosene and diesel was boosted from 120 million tons in 2000 to 267 million tons in 2011, increasing 1.28 times, up 7.1% in average per year. Table 3 provides the output data of China’s gasoline, kerosene and diesel from 2000 to 2011.
   In the past 12 years, the growth of China’s gasoline, kerosene and diesel output has generally kept pace with increasing demand.
   In 2000, the net export of China’s gasoline, kerosene and diesel was 6.8 million tons. However, surging domestic demand for oil products in the past 12 years has changed China from a net exporter to a net importer. It reached 7.63 million tons in 2010, falling to around 4.8 million tons in 2011.
The move to improve oil quality has accelerated, the State has progressively adjusted the variety and content of oil products , and the development of alternative fuels is ongoing.
   To reduce the effect of car exhaust on the environment and comply with stricter environmental requirements, China’s refineries have paid more attention to the oil quality, meeting certain criteria within 10 years that Europe and America took 20 to 30 years to deal with. After realizing lead-free petrol in 2000, the State in 2003 set China’s first standards on the content of benzene, olefin and aromatic hydrocarbon in gasoline. Also in the same year, sulfur content in gasoline and diesel dropped from 2 000 mg/L and 5 000 mg/L to 800 mg/L and 2 000 mg/L respectively, in compliance with State requirements. Since July 1, 2005, gasoline and diesel were required to contain no more than 500 mg sulfur per liter. From 2008 to 2010, in Beijing, Shanghai and Guangzhou, local standards on motor gasoline and diesel, equivalent to European IV Emission Standard were implemented decreasing sulfur to 50 ppm. Since July 1, 2010, National Standard III on motor gasoline has been adopted nationwide, reducing sulfur content to 150 ppm. In 2011, as domestic refineries suffered policy-related losses, they needed a longer period to improve technologies. Furthermore, the tight supply in the 2H 2011, and the widening range and more complicated structure of diesel consumers made technology upgrades even harder. Therefore, the National Standard III on diesel, which was scheduled to be implemented on July 1, 2011 was postponed to the end of January 2012, starting in  nationwide highway gas stations and provincial gas stations and decreasing diesel’s sulfur content to 350 ppm. Gasoline in line with National Standard IV will be supplied nationwide in January 2014.
   China’s refining industry has been optimizing its product structure. Consequently, the ratio of light oil increased, and the output of chemical light oil rose when reducing fuel oil production. In addition, the output of high value-added products such as high-octane clean gasoline and high-grade lubricating oil has grown relative to other products. In 2010, light oil yields of both Sinopec and PetroChina exceeded 75%. From 2005 to 2010, the proportion of PetroChina gasoline output that was high-octane rose from 39% to 67%, while the high-grade lubricating oil proportion jumped to 67% from 41%. With regard to API II & III lubricants with hydrogenation technology, the State has a production capacity of at least 1.2 million tons. By the end of 2010, the proportion of Sinopec gasoline output that was high-octane had reached 93.34%, up 4.04% over a year earlier, and the output of light oil was up 30.2% year-on-year. According to market demand as well as consumption, the two oil giants also adjusted their diesel and gasoline product specifications.
   Due to fluctuating international oil prices, alternative fuels have developed rapidly around the world since 2004. In China, the use of various alternative fuels grew year by year, and the electric automobile has stepped onto the stage. In general, gasoline substitutes developed more quickly than diesel ones. China produced around 1.8 million tons of fuel ethanol in 2010, when the consumption of ethanol gasoline accounted for 25% of the total, and motor ethanol gasoline replaced regular-grade kind in Heilungkiang, Jilin, Liaoning, Henan, Anhui, and 27 cities of Hebei, Shandong, Jiangsu and Hubei. China has become the third largest biofuel ethanol producer and consumer after Brazil and America. The trial of producing methanol gasoline is ongoing. Fuel Methanol for Motor Vehicles and Methanol Gasoline for Motor Vehicles were issued in 2009. From then on, methanol gasoline started to be applied in three experimental provinces, Zhejiang, Shanxi and Shaanxi. Domestic coal-to-oil capacity, in construction or in operation, reached 1.68 million tons. Shenhua’s 1.08 million t/a direct coal liquefaction plant was put into production at the beginning of 2010. Compressed natural gas autos have been promoted in many cities, and the number of such vehicles in China has reached over 1 million. Biodiesel Fuel Blend (B5) was formally issued in February 2011. In November 2010, CNOOC put its 60 000 t/a biodiesel device into operation, after which the company conducted trial sales in some gas stations of Henan province. Aviation biofuels, which are produced by PetroChina with jatropha curcas oil as raw material, have been applied in test flights achieving satisfying results. At present, China could produce over 2 million tons of biodiesel, which takes drainage oil, oil residue and oil plants as raw materials. Furthermore, benefiting from preferential policies, China’s electric auto industry developed aggressively. Generally speaking, as China’s alternative fuels remain at initial stages, they play only a small role in the refining business currently, and some technical problems are still waiting for solutions.