Steady Advances of the Refining Industry in China (I)

By Jin Yun, CNPC and Zhu He, Sinopec

The scale of the oil refining industry in China continued to expand rapidly in 2012, with further upgrading of the average scale of refineries, further adjustment of the production unit structure and further promotion of the quality of oil products. Construction and development in China’s oil refining industry remained in the world’s spotlight.
   It is expected that the quality standard for vehicle gasoline and diesel in China will go from National III to National IV in 2013. The increase of the environmental protection pressure will likely accelerate the upgrading of the quality of Chinese oil products. The new pricing mechanism for oil products will benefit the oil refining industry. The oil refining capacity and the amount crude oil processed will increase steadily. The geographic distribution of refineries will be further optimized. The scale of production units and the integration of oil refining and chemical production will hit new highs. Alternative energy sources such as bio-fuels will develop further. In the next few years the oil refining industry in China will still be in a period of development and become bigger and stronger. Difficulties and challenges will co-exist with opportunities and advantages.

   1. Last year’s growth of oil refining capacity was once again faster than the growth of consumption

   By the end of 2012 the crude oil primary processing capacity in China reached 575.00 million t/a, an increase of 6.5% over the previous year and the crude oil processing amount was 468.00 million tons, an increase of 3.7%. The following two points should be noted. The growth of oil refining capacity in 2012 accelerated and was 2.5 percent faster than the growth of consumption, while in 2011, capacity grew 2.1 percent slower than consumption. The other point is that the oil refining capacity of PetroChina and Sinopec increased 17 million t/a, accounting for nearly a half of the total new capacity and seldom seen in the past.
   Refining capacity in China increased 35 million t/a. The number of refineries of PetroChina and Sinopec accounted for less than a half of the national total (over 150). Their total crude oil primary processing capacity, however, accounted for 75.6% of the national total (see Table 1), being 170 million t/a and 260 million t/a, respectively. Their total oil refining capacity in 2012 was 18 million t/a higher than in 2011. The total crude oil primary processing capacity of CNOOC, ChemChina, SinoChem, Norinco Group and other oil refining enterprises was 140 million t/a, accounting for 24.4% of the national total and being 1.6 percent higher than the previous year. Their total oil refining capacity in 2012 was 17 million t/a higher than 2011. Table 1 shows the new oil refining capacity in China in 2012.
   The oil refining capacity of PetroChina increased 3.50 million t/a. The oil refining capacity in Hohhot Petrochemical Co., Ltd. increased by 3.50 million t/a in 2012 due to the completion of a renovation/expansion project. A 5-year project of 10 million t/a oil refining and 1 million t/a ethylene was completed by Fushun Petrochemical Co., Ltd. In the project nine oil refining units were constructed and seven oil refining units were relocated, but the oil refining capacity in the company was not increased. By the end of 2012, PetroChina had 26 refineries, and the average scale was 6.65 million t/a. Eight of them had a capacity of over 10 million t/a. Twelve of them had a capacity of over 5 million t/a. The oil refining capacity of Dalian Petrochemical Co., Ltd. was more than 20 million t/a.
   The oil refining capacity of Sinopec increased 14.50 million t/a. The oil refining capacity of Maoming Petrochemical Co., Ltd. increased by 10 million t/a in 2012 due to the completion of an expansion project. The completion of an expansion project resulted in a 4.50 million t/a increase of the oil refining capacity of Jinling Petrochemical Co., Ltd. Construction and renovation projects of China-Kuwait Oil Refining Co., Ltd., Jinling Petrochemical Co., Ltd. and Jiujiang Petrochemical Co., Ltd. were making headway. By the end of 2012, Sinopec had 35 refineries, and the average scale was 7.48 million t/a. Eleven of them each had a capacity of over 10 million t/a. Another eleven each had a capacity of over 5 million t/a. The number of enterprises with an oil refining capacity of over 20 million t/a increased from one (Zhenhai Refining & Chemical Co., Ltd.) to two (Zhenhai Refining & Chemical Co., Ltd. and Maoming Petrochemical Co., Ltd.).
   The combined oil refining capacity of other enterprises increased 6 million t/a. By the end of 2012 the total oil refining capacity of CNOOC was 29.50 million t/a. In CNOOC, the oil refining capacity of China Offshore Bitumen Co., Ltd. increased by 2.50 million t/a. Refineries of CNOOC included Huizhou Refinery and local refineries controlled by CNOOC in recent years such as Daxie Petrochemical Co., Ltd. and Haihua Group Co., Ltd. The total oil refining capacity of ChemChina was 27.50 million t/a. ChemChina had nine refineries including Changyi Chemical Co., Ltd., and the oil refining capacity in Zhenghe Petrochemical Co., Ltd. increased by 3.50 million t/a. Existing refineries in SinoChem included Dalian West Pacific Refinery and Shandong Hongrun Petrochemical Co., Ltd. where SinoChem holds stakes. The new 12 million t/a heavy oil processing plant of Quanzhou Petrochemical Co., Ltd. is expected to start production in 2013 and the total oil refining capacity of SinoChem will reach around 20 million t/a at that time.
   The combined oil refining capacity of “local” refineries increased 11 million t/a. The pace of renovation/expansion in local refineries was quickened in 2012. The oil refining capacity in local refineries such as Dongming Petrochemical Co., Ltd. and Kenli Petrochemical Co., Ltd. increased by 11 million t/a in 2012. By the end of 2012, the total oil refining capacity in around 60 local refineries was 83 million t/a. There were around 50 private enterprises and their total oil refining capacity was 40.70 million t/a. There were around 10 local state-owned enterprises (including Shaanxi Yanchang) and their total oil refining capacity was 42.30 million t/a. Shaanxi Yanchang owned three refineries in Yan'an, Yongping and Yulin. The oil refining capacity of Yulin Refinery increased by 1.50 million t/a. The total oil refining capacity of Shaanxi Yanchang was 16.50 million t/a. It is noteworthy that secondary processing and intensive processing units such as catalytic cracking, hydrogenation, coking and reforming units in local private refineries increased in 2012. Renovated/expansion units in many refineries such as Qirun Chemical Co., Ltd., Yongxin Chemical Co., Ltd. and Binyang Fuel Chemical Co., Ltd. started production.
The oil refining capacity of foreign companies made an increase of 8.24 million t/a. By the end of 2012 the equity oil refining capacity in foreign companies was 8.24 million t/a, accounting for 1.4% of the total oil refining capacity in China. (See Table 2.) There are two joint-venture oil refining projects. One is the plant of Saudi Aramco and Exxon Mobil in Fujian in collaboration with Sinopec. The other is the plant of Total in Dalian in collaboration with PetroChina and SinoChem. Another five large Chinese-foreign joint venture refinery projects are under construction today. With the completion of these projects, the equity oil refining capacity of foreign companies will increase dramatically. Table 2 shows the equity oil refining capacity of foreign companies in 2012.
   Oil refining capacity in some “local” refineries such as those in Shandong and Guangdong were upgraded. The crude oil primary processing capacity in China is mainly concentrated in North China, Northeast China and South China. The capacity in these three regions accounted respectively for 28%, 20% and 18% of the national total in 2012, totaling 66%. A hierarchy was conceived, with the eastern region as primary and the central/western region as supplemental. Shandong is the biggest province in terms of oil refining capacity. Liaoning and Guangdong come next. The oil refining capacity in Shandong and Guangdong reached 110 million t/a and 70 million t/a respectively in 2012, an increase of 15.50 million t/a and 10 million t/a over the previous year. The overall flow of oil products in China is from west to east, from north to south and from the east to the southwest.
   While increasing the oil refining capacity, the oil refining industry in China also highlights structural adjustment, rational geographic distribution, optimized resource utilization. The regional distribution of the oil refining capacity in China has been adjusted considerably in recent years. The proportion held by North China (including Shandong) and South China (including Guangdong) in 2012 was higher than in the previous year. The proportion held by Northeast China was down. The oil refining capacity in South China and Southwest China rose. The crude oil primary processing capacity in the three areas of the Bohai Bay Rim (including Shandong and Liaoning), the Yangtze River Delta and the Pearl River Delta is around 225 million t/a, 81 million t/a and 77 million t/a today, accounting for around 39%, 14% and 13% of the national total, totaling 66%.


Table 1    New Oil Refining Capacity in China, 2012  (million t/a)
Group Corporation    Enterprise    New capacity
PetroChina    Hohhot Petrochemical Co., Ltd.    3.5
Sinopec        Maoming Petrochemical Co., Ltd.    10
            Jinling Petrochemical Co., Ltd.    4.5
CNOOC        China Offshore Bitumen Co., Ltd.    2.5
ChemChina    Zhenghe Petrochemical Group Co., Ltd.    3.5
Shaanxi Yanchang    Yulin Refinery    1.5
Other oil refining enterprises    Dongming Petrochemical Co., Ltd.     6
                                Kenli Petrochemical Co., Ltd.    3.5
Total        35    


   2. There were special features such as large scale of production units, integration of oil refining and chemical production and concentration of industrial clusters

   With the completion of a group of renovation/expansion projects, the average scale of refineries in China made a further increase in 2012. Production units are larger. Sinopec and PetroChina have become the second and fifth biggest oil refining companies in the world. Some refineries subordinate to these two groups are also ranked among world-class refineries. Sinopec Maoming Petrochemical Co., Ltd., Sinopec Zhenhai Refining & Chemical Co., Ltd. and PetroChina Dalian Petrochemical Co., Ltd. hold the first three places in Chinese refineries on strength of their oil refining capacity (respectively 23.50 million t/a, 23 million t/a and 20.50 million t/a) and are ranked among world-class refineries with a capacity of over 20 million t/a. PetroChina already owns eight major oil refining bases, each with a capacity of over 10 million t/a. Sinopec has basically formed 11 oil refining bases, each with a capacity of over 10 million t/a in three major refinery clusters in the Bohai Bay Rim, the Yangtze River Delta and the Pearl River Delta. The total oil refining capacity of PetroChina’s and Sinopec’s refineries with individual capacities of over 10 million t/a accounts for 59% of their respective totals. There are 21 oil refining bases, each with a capacity of over 10 million t/a in China. (See Table 3.) Their total oil refining capacity is 280 million t/a, accounting for nearly a half of the national total. Besides, there are 40 refineries, each with a capacity of 5-10 million t/a. Their total oil refining capacity accounts for nearly 40% of the national total.
   Fourteen of these 21 oil refining bases with a capacity of over 10 million t/a own ethylene units. The Bohai Bay Rim, the Yangtze River Delta and the Pearl River Delta are also the three major regions with high integration of oil refining and chemical production. Sixty six percent of the oil refining capacity and 68% of the ethylene capacity in China are concentrated in these three regions. Quite a few joint-venture refining/chemical integrated plants, each with a capacity of over 10 million t/a under PetroChina such as those of Jieyang Petrochemical Co., Ltd., Taizhou Petrochemical Co., Ltd. and Tianjin East Petrochemical Co., Ltd. have been launched or are already under construction. Some joint-venture refining/chemical integrated projects with a capacity of over 10 million t/a in Sinopec such as the one in China-Kuwait Zhenjiang Petrochemical Co., Ltd. and other large refining/chemical integrated projects or renovation/expansion projects are also in progress. With the implementation of refining/chemical integration in China, the synergistic effect of integration and the radiative effect of industrial clusters will be brought into full play.

   3. The structure of oil refining units was constantly adjusted and the intensive processing capacity grew rapidly

   With the higher domestic requirements on the quality of oil products, the exhaustion and deteriorated quality of raw material resources and the constantly increasing volume of imported crude oil, the structure of oil refining units in China has been constantly adjusted, and the intensive processing capacity has been strengthened. In the capacity of secondary units in China, the catalytic cracking capacity increased by 13.05 million t/a in 2012, the delayed coking capacity increased by 3.60 million t/a, the catalytic reforming capacity increased by 1.60 million t/a, the hydrocracking capacity increased by 4.40 million t/a and the hydrofining capacity increased by 15.40 million t/a. What should be mentioned is that, as a traditional process in the oil refining industry in China, the proportion of the catalytic cracking capacity in the crude oil processing capacity has dropped constantly, reducing from 36.13% in 2000 to 30.68% in 2012. The proportion of hydrogenation units used to produce clean oil products increased drastically from 16% in 2000 to 33% in 2012. Compared with the world average level of 55%, however, there is still a considerable gap. The hydrogenation capacity of refineries in Sinopec already accounts for over 50% of the primary processing capacity today. Hydrogenation units have become mainstream units in terms of scale, number and processing volume. Furthermore, as one of the intensive processing capacities, the proportion of the delayed coking capacity in the primary processing capacity also went up sharply from 8% in 2000 to 16% in 2012.
   The oil refining industry in China is not limited to producing gasoline and diesel with low sulfur or super low sulfur. An optimized mix of processing process technologies can also be chosen according to crude oil type, product structure and quality standard. The high-sulfur crude oil processing capacity of Sinopec that is based on imported crude oil has already reached 105 million t/a today. Ten high-sulfur crude oil processing bases and seven high-acid crude oil processing bases have been constructed. The proportion of high-sulfur and high-acid crude oil is 49%. The proportion of sulfur-containing and acid-containing crude oil is 80%. The restructuring of oil refining units in China is in line with the development trend of the world. Nevertheless, it will still take some time for China to fully catch up with the world’s most advanced level.

   4. The growth of crude oil processing volume slowed down and the operating rate of refineries dropped

   With impacts from high oil prices in the international market, as well as the serious financial losses in the oil refining industry and the slowdown of growth in demand for oil products in China, the growth of the crude oil processing volume slowed down in 2012. The crude oil processing volume was 468 million tons in 2012, an increase of 3.7% over the previous year and the growth was 2.0 percent lower. The average operating rate of refineries was reduced from 87% in the previous year to 84%. The output of oil products was 281 million tons, an increase of 5.5% over the previous year and the growth was slightly slower. The growth in output differed greatly for gasoline, kerosene and diesel. The output of kerosene reached 21.34 million tons, a drastic increase of 13.7% over the previous year, and the growth was 4.1 percent higher. The output of gasoline was 89.76 million tons, an increase of 10.3% over the previous year, and the growth was 4.5 percent higher. The output of diesel was 171 million tons, an increase of only 2.4% over the previous year, and the growth was 2.6 percent lower.


Table 2   Equity Refining Capacity of Foreign Companies, 2012 (million t/a)
Enterprise    Foreign company    Chinese    shareholder    capacity Total Capacity of foreign firms    Remark
Quanzhou Petrochemical Co., Ltd.    Exxon Mobil, Saudi Aramco    Sinopec, Fujian government    12    6     production started in 2009
Dalian West Pacific Petrochemical Co., Ltd.    Total of France    PetroChina, SinoChem    10    2.24    production started in 1997
Taizhou Petrochemical Co., Ltd.    Qatar Petroleum, Shell    PetroChina    15    7.35    under construction
China-Kuwait Refining Co., Ltd.    Kuwait Petroleum    Sinopec    15    7.35    under construction
Tianjin East Petrochemical Co., Ltd.    Rosneft    PetroChina    13    6.37    under construction
Kunming Petrochemical Co., Ltd.    Saudi Aramco    PetroChina    10    to be finalized    under construction
Jieyang Petrochemical Co., Ltd.    PDVSA    PetroChina    20    to be finalized    under construction

   5. The upgrading of oil product quality was promoted and the output of alternative fuels for vehicles reached over 10 million tons

   (1) Implementation of the National III standard for diesel started nationwide
PetroChina and Sinopec have upgraded the quality of oil products in recent years in an orderly way, according to the requirements of new national and local quality standards for gasoline and diesel, and they have launched a number of quality upgrading projects. After the National III standard for gasoline started implementation in 2010, the National III standard for diesel also started nationwide implementation in freeways and provincial highways at the end of July 2012. The sulfur content in diesel was further reduced to 350 ppm. Despite the rapid upgrading of oil product quality, China still trails advanced countries in the quality of major oil products. In advanced countries, the content of sulfur in gasoline is less than 50-150ppm, the bulk content of olefins is less than 25-30%, the bulk content of aromatics is less than 25-45% and the bulk content of benzene is less than 1.0%. There is still a certain gap in the quality of gasoline in China and further improvements need to be made.
   (2) The diesel/gasoline output ratio was significantly reduced
The diesel/gasoline output ratio in China was 1.9 in 2012, a drop of 0.14 from 2011, and the proportion of the diesel output was somewhat reduced. The diesel/gasoline output ratio in the third quarter of 2012 was 1.85, hitting the lowest level in the same period of the past nine years. The main reason was that refineries made a moderate adjustment to the output ratio of gasoline and diesel according to the demand trend in the domestic market. The diesel/gasoline output ratio in China has been mostly 2.05-2.1 in recent years, and the diesel/gasoline consumption ratio has been mostly 2.10-2.25.

Table 3    Distribution of Refineries with a Capacity of over 10.00 Million T/A in China, 2012  (million t/a)
Group    Location    Refinery    Primary processing capacity    Remark
PetroChina    Northeast China    Dalian Petrochemical Co., Ltd.    20.5    
        Fushun Petrochemical Co., Ltd.    11.5    with ethylene unit
        Dalian West Pacific Petrochemical Co., Ltd.    10    
        Jilin Petrochemical Co., Ltd.    10    with ethylene unit
        Liaoyang Petrochemical Co., Ltd.    10    with ethylene unit
    Northwest China    Lanzhou Petrochemical Co., Ltd.    10.5    with ethylene unit
        Dushanzi Petrochemical Co., Ltd.    10    with ethylene unit
    South China    Guangxi Petrochemical Co., Ltd.    10    ethylene unit under planning
Sinopec    Bohai Bay Rim    Qingdao Refinery    10    ethylene unit under Planning
        Qilu Petrochemical Co., Ltd.    10    with ethylene unit
        Tianjin Petrochemical Co., Ltd.    12.5    with ethylene unit
        Yanshan Petrochemical Co., Ltd.    11    with ethylene unit
    Yangtze River Delta    Zhenhai Refining & Chemical Co., Ltd.    23    with ethylene unit
        Shanghai Petrochemical Co., Ltd.    14    with ethylene unit
        Jinling Petrochemical Co., Ltd.    13    
        Gaoqiao Petrochemical Co., Ltd.    11.3    
    Pearl River Delta    Maoming Petrochemical Co., Ltd.    13.5    with ethylene unit
        Guangzhou Petrochemical Co., Ltd.    13.2    with ethylene unit
        Fujian Refining & Chemical Co., Ltd.    12    with ethylene unit
CNOOC    South China    Huizhou Refinery    12    with ethylene unit
Local refineries    Shandong    Dongming Petrochemical Co., Ltd.    12    
Total            280    

   (3) The output of alternative fuels for vehicles reached over 10 million tons and there was a prominent feature of regional development
   The amount of alternative fuels replacing gasoline and diesel for use in conventional vehicles was around 10.70 million t/a in 2012, an increase of 20% over the previous year and accounting for 4% of the national total consumption of gasoline and diesel. Alternative fuels in China made further developments in 2012. The output of biological fuels and coal-based alternative fuels went further up. The development of electric vehicles was still supported and encouraged by state policies. As China has made pilot dissemination, production and sales of vehicle alternative fuels only in limited regions, the feature of regional market consumption was prominent. The amount replaced by LNG accounted for around 70% of the total. The development of LNG vehicles was mainly concentrated in natural gas producing regions and regions reached by the west-east transmission line. By the end of December 2012 the total number of CNG vehicles in China had already increased to 70 000. There were nearly 500 LNG filling stations. China became the fourth biggest LNG vehicle market in the Asia-Pacific region and the sixth biggest LNG vehicle market in the world. Ethanol fuel saw no capacity expansion and its use was limited to six provinces area and limited to 27 cities of four provinces area. The output of bio-diesel in China was around 500 000 tons. CNOOC already started to produce bio-diesel in Hainan and tried to sell its products to three oil giants. Shanxi, Guizhou, Shaanxi and Zhejiang tracked statistics of methanol gasoline consumption. It is estimated that 450 000 tons of methanol was used to replace gasoline in 2012. Electric vehicles started trial use in Wuhan, Beijing, Shanghai, Hangzhou and Shenzhen. More than 300 electric vehicles are being used in Beijing, Hangzhou, Zhengzhou and Suzhou.
   The new coal chemical sector in China has made rapid development. Coal-to-olefin, coal-to-liquid and coal-to-EG technologies hold a leading position in the world. Coal-based alcohol ether fuels are oil substitutes with widespread attention. After problems in technology, economics and application are solved, there will be reason to hope for a further increase in consumption and extended dissemination. The capacity of coal-to-liquid plants already starting production has reached 1.55 million t/a in China. They include Shenhua Coal To Liquid and Chemical Co., Ltd. (1.08 million t/a), Shanxi Lu'an Coal-Based Synthetic Oil Co., Ltd. (210 000 t/a), Inner Mongolia Yitai CTO Co., Ltd. (160 000 t/a) and Shanxi Jicheng Anthracite Mining Group Tianxi CTO Co., Ltd. (100 000 t/a). Such plants are mainly concentrated in Erdos and North Shanxi, which have rich coal resources. The 500 000 t/a coal/oil mixed refining demonstration plant constructed by Shaanxi Yanchang in 2012 will be completed and put on stream in 2013. The breakthrough of new coal chemical technologies and the completion of a group of demonstration plants will help China shake off its undue oil dependence, adjust the chemical raw material structure and implement the oil substitution strategy.