Development of Oil Refining Shifts from Scale/Speed to Quality/Benefit
Year:2017 ISSUE:5
COLUMN:ORGANICS
Click:288    DateTime:Mar.20,2017
Development of Oil Refining Shifts from Scale/Speed to Quality/Benefit

By Zhang Fuqin, China Petroleum Planning and Engineering Institute

Increase in capacity and output

China’s crude oil processing capacity reached 756 million t/a in 2016. The oil refining processing capacity of PetroChina is 189 million t/a. PetroChina has 26 refineries, nine of them with individual capacity exceeding 10 million t/a. The oil refining processing capacity of Sinopec is 266 million t/a, accounting for 35% of the national total. Other oil refining enterprises include CNOOC, ChemChina, SinoChem, China North Industries, Shaanxi Yanchang, local private refineries, foreign-funded refineries and CTL units (coal to liquid fuels). The oil refining processing volume during January-October 2016 exceeded 470 million tons, up more than 5% from the same period of 2015.
The average operating rate of China’s refineries dropped from 84.2% in 2010 to 75.4% in 2015. The overall operating rate of oil refining units is believed to have been around 75% for the whole of 2016.
The number of large refineries in China increases constantly. All new refineries exceed 10 million t/a capacity. The profit earned in the oil refining sector in 2015 was RMB64.0 billion, a drastic increase of 420% over 2014’s RMB12.2 billion.

Sharp increase of crude oil volume processed by local refineries

The Ministry of Commerce issued a policy allowing more firms to import crude oil, causing the import business to diversify. In previous years, crude oil was imported only through five state-owned enterprises – including China National United Oil Co., Ltd., China National United Petrochemical Co., Ltd., CNOOC, SinoChem and Zhuhai Zhenrong Co., Ltd. In 2015, 14 enterprises gained approval to process imported crude oil, including Shandong Dongming Petrochemical Group, Liaoning Panjin North Asphalt Fuel Co., Ltd., SinoChem Hongrun Petrochemical Co., Ltd., Shandong Kenli Petrochemical Group Co., Ltd., Shandong Lijin Petrochemical Co., Ltd. and Dongying Yatong Petrochemical Co., Ltd. The total crude oil volume approved for processing was 58.19 million tons. Several outdated oil refining units with a combined capacity of 24.20 million t/a and 32 small merged/reformed oil refining units with a combined capacity of 16.72 million t/a were decommissioned.

Reduction of crude oil output, sustained increase of import volume

According to statistics, China’s apparent consumption of crude oil was 476.72 million tons during January-October 2016, an increase of 5.6% over the 451.42 million tons consumed in the same period of 2015. Extraction of crude oil in China amounted to 166.82 million tons, a drop of 6.7% from the 178.74 million tons produced in the same period of 2015. The volume of crude oil imported was 312.31 million tons, an increase of 13.6% over 274.97 million tons imported in the same period of 2015. The export volume was 2.41 million tons, an increase of 5.1% over the 2.29 million tons exported in the same period of 2015.
Shandong imported more crude oil than any other administrative division of China. Table 1 shows the import of crude oil by major regions of China.

Increase of total oil product output, sustained increase of aviation kerosene and gasoline output, slight reduction of diesel output

China produced 286.41 million tons of oil products (gasoline, kerosene and diesel) during January-October 2016, an increase of 2.5% over the 279.46 million tons produced in the same period of 2015.
By product variety, the output of gasoline was 106.88 million tons during January-October 2016, an increase of 6.7% over 100.15 million tons in the same period of 2015. The output of kerosene was 32.98 million tons, an increase of 9.6% over 30.10 million tons in the same period of 2015. The output of diesel was 146.55 million tons, a drop of 1.8% from 149.21 million tons in the same period of 2015.

Slowdown of growth in domestic demand for oil products, increase of export volume

The apparent consumption of oil products in China was 260.18 million tons during January-October 2016, a drop of 1.3% from the same period of 2015. Meanwhile, exports far exceeded imports. The export volume of oil products was 30.20 million tons, an increase of 55.9% over 19.37 million tons in the same period of 2015. The import volume was 3.97 million tons, an increase of 12.4% over 3.53 million tons in the same period of 2015.
China’s pattern of consuming oil products is also changing. Consumption of kerosene is increasing notably. Consumption of gasoline is also increasing. But consumption of diesel has declined drastically.
The apparent consumption of gasoline was 99.28 million tons during January-October 2016, an increase of 3.6% over 95.87 million tons in the same period of 2015. The export volume of gasoline was 7.80 million tons, an increase of 75.3% over 4.45 million tons in the same period of 2015. The import volume of gasoline was 208 kt, an increase of 24.5% over 167 kt in the same period of 2015.
The apparent consumption of kerosene was 25.70 million tons, an increase of 9.7% over 23.43 million tons in the same period of 2015. The export volume of kerosene was 10.25 million tons, an increase of 6.2% over 9.65 million tons in the same period of 2015. The import volume of kerosene was 2.97 million tons, a slight drop of 0.5% from 2.98 million tons in the same period of 2015.
The apparent consumption of diesel was 135.20 million tons, a drop of 6.3% from 144.33 million tons in the same period of 2015. The export volume of diesel was 12.15 million tons, an increase of 130.5% over 5.27 million tons in the same period of 2015. The import volume of diesel was 796 kt, an increase of 105.9% over 387 kt in the same period of 2015.

Constant acceleration of upgrades to meet gasoline and diesel quality standards

The National Development and Reform Commission issued the “Work Scheme for Accelerating Upgrades of Oil Product Quality” in May 2015, requiring that China V vehicle gasoline (including E10 ethanol gasoline) and vehicle diesel (including B5 bio-diesel) be supplied in the eastern region of China starting from January 1, 2016, and China V vehicle gasoline and diesel be supplied all over China starting from January 1, 2017.
To meet environmental protection requirements, oil refining enterprises in China have both adjusted their production structure and optimized gasoline and diesel blends through various measures such as the construction of gasoline and diesel hydrogenation units. Requirements to upgrade the quality of gasoline and diesel were satisfied by those actions.

Table 1    Import of crude oil by major regions of China, Jan-Oct 2016

Region    Import volume (million tons)    Proportion (%)
National    312.31    100.00
Shandong    92.03    29.47
Liaoning    38.06    12.19
Guangdong    35.00    11.21
Zhejiang    24.55    7.86
Jiangsu    21.10    6.76
Fujian    16.98    5.44
Shanghai    16.55    5.30
Heilongjiang    13.29    4.26
Guangxi    11.39    3.65
Hainan    9.42    3.02
Beijing    8.59    2.75
Xinjiang    8.29    2.65
Tianjin    8.23    2.63
Hebei    7.80    2.50


Prospect to 2017

The number of automobiles in use in China is expected to keep growing rapidly during the Thirteenth Five-Year Plan period (2016-2020). So demand for oil products will also grow considerably. Due to the rapid development of alternative energy sources for use in automobiles, such as natural gas and electricity, however, the growth of demand for oil products will slow down. The three demand trends of substantial increase in kerosene demand, some increase in gasoline demand and drastic reduction in diesel demand will likely continue through 2017.
Development of the oil refining industry in China in 2017 will shift emphasis from scale/speed goals toward quality/benefit goals. China’s dependence on imported crude oil will become even heavier. China’s oil refining industry should improve its processing efficiency, increase the output of kerosene to meet demands for transportation fuels, reduce the ratio between diesel and gasoline output, adjust the diesel production structure, raise the percentage of vehicle diesel output, minimize the production of low-value products such as petrol coke and otherwise optimize the product structure.