By Fei Huawei, Gao Zhenyu, CNPC Economics & Technology Research Institute
1. Refining capacity continues to grow, private refineries play a leading role, and structural surplus is still prominent
By the end of 2018, China's refining capacity reached 831 million t/a (Figure 1), a net increase of 22.25 million t/a from 2017. Among them, the newly added capacity was 33.9 million t/a, and the private enterprise has completed the construction of its first 20 million tons’ world-class refinery and 11.65 million t/a of backward capacity were eliminated (Table 1).
Table 1 China's new refining capacity and elimination of backward capacity in 2018
Group | Company | Location | Capacity (10kt/a) | |
New capacity | PetroChina | Huabei PC | Hebei | 500 |
CNOOC | Haihua PC | Shandong | 240 | |
CNOOC Dongying PC | Shandong | 500 | ||
Teapot refinery | Hengli PC | Liaoning | 2 000 | |
Shengxing PC | Shandong | 150 | ||
Subtotal | 3 390 | |||
Eliminated capacity | Teapot refinery | Haike Group | Shandong | 80 |
Xinhai PC | Jiangsu | 250 | ||
Kelida PC | Shandong | 150 | ||
Chengda New Energy | Shandong | 210 | ||
Fuhai Dongying Lianhe PC | Shandong | 280 | ||
Wantong PC | Shandong | 195 | ||
Subtotal | 1 165 | |||
Total net capacity increase | 2 225 |
Figure 1 China's refining capacity increase and growth rate, 2008-2018
The overall level of the refining industry has been further improved, but the problem of structural excess of refining energy was still prominent. First, although the total refining capacity was large, the average size of the standalone units was small, and the level of integration was not high. The average scale of domestic refineries was only 4.12 million tons, and there were only 19 integrated plants, with a total capacity of 230 million t/a. Second, the regional layout was not balanced, and the capacities in some eastern and western provinces were obviously excessive. Third, the main technical and economic indicators and equipment levels among refineries were uneven. There were only 15 refineries having energy consumption per unit energy factor at 8.5 kg/ton or less, accounting for only 21% of the total national capacity. A considerable number of backward capacities still existed, and the excessive refining capacity reached at least 90 million t/a.
The diversified pattern of participation of PetroChina, Sinopec, CNOOC, ChemChina, Sinochem, teapot refineries, foreign invested refineries and coal-based oil products companies continued to develop (Table 2). The total refining capacities of teapot refineries (excluding those acquired or controlled by central state-owned enterprises) have reached 213 million t/a, accounting for 25.6% of the national total. Judging from the number of refineries, there were 28 refineries with capacities over 10 million t/a, an increase of one YoY, whose total refining capacity was 370 million t/a, accounting for 44.5% of the total.
Table 2 China's refining capacity composition, 2016-2018
Enterprise | 2016 | 2017 | 2018 | |||
Capacity (10 kt/a) | % of national total | Capacity (10 kt/a) | % of national total | Capacity (10 kt/a) | % of national total | |
Total | 79 155 | 80 915 | 83 140 | |||
Sinopec | 26 170 | 33.06 | 26 170 | 32.34 | 26 170 | 31.48 |
PetroChina | 18 850 | 23.82 | 20 150 | 24.9 | 20 650 | 24.84 |
CNOOC | 3 460 | 4.37 | 4 460 | 5.51 | 5 200 | 6.25 |
Others | 28 771 | 36.35 | 28 231 | 34.89 | 29 216 | 35.14 |
Coal-based oil products companies | 1 080 | 1.36 | 1 080 | 1.34 | 1 080 | 1.3 |
Foreign invested | 824 | 1.04 | 824 | 1.02 | 824 | 0.99 |
The regional layout has been adjusted and the industrial concentration has improved. North China, Northeast China, South China and East China were still major producing areas, with a total refining capacity of 673 million t/a, accounting for 80.9% of the total capacity; the capacity in Northeast China increased by 2% compared with the previous year, and the proportion of other regions has declined. The total refining capacity of the three major refinery and chemical clusters in the Bohai Bay, the Yangtze River Delta and the Pearl River Delta reached 588 million t/a, accounting for 71% of the total refining capacity; and their ethylene capacity was 13.865 million t/a, accounting for 55% of China’s total ethylene capacity.
2. Refinery production runs well, and all major indicators keep growing
In 2018, refineries achieved three increases in crude oil processing volume, operating rate and refined oil production. Among them, crude oil processing volume reached 604 million tons, an increase of 6.3% YoY. The operating rate of refineries in China has rebounded for the fourth consecutive year, rising by 1.9% YoY to 72.9%, but it was still relatively low (Figure 2). Although the teapot refineries’ operating rate has risen slightly, it fluctuated significantly throughout the year due to policy, oil price and other factors. Affected by factors such as steady structural reforms on the supply side, stricter environmental protection, and limited production and production suspension in small refineries, China's refined oil output totaled 360.34 million tons, up 0.6% YoY, and the growth rate was down 2.2% from the previous year. The violent fluctuations in oil prices have a certain impact on the cost of refining, and the overall profit of the industry has declined. The profit was about RMB306/t.
Figure 2 Chinese refineries’ operating rate, 2011-2018
3. Domestic refineries actively respond to new changes in operating environment, and the transformation and upgrading of teapot refineries are accelerating
New changes and challenges have emerged in the operating environment of the refinery industry. First, the pressure on environmental protection has increased. Refineries accelerated the implementation of air and water pollution prevention and control actions, vigorously saving energy and reducing emission. They also continued structural adjustment and added deep processing units to significantly increase the ratio of reforming and hydrogenation. The ratio of secondary processing capacity to primary processing capacity exceeded 100% for the first time, reaching 105.00% (Table 3). Second, the implementation of major special governance has started. The problems of unauthorized construction of refineries, unfinished product quality upgrading and unsatisfactory safety and environmental protection have been tackled, and the construction, production and operation of refineries with a capacity of more than 2 million t/a have been standardized. Third, the supervision of the refined oil market has been strengthened. The implementation of new policies of refined oil consumption tax and value-added tax have certain impacts on some teapot refineries, and the overall standardization of production and operation has been improved. In addition, it has also restrained the blend oil resources.
Table 3 China's crude oil secondary processing capacity composition, 2016-2018
Project | 2016 | 2017 | 2018 | |||
Processing capacity (10kt/a) | % of primary processing capacity | Processing capacity (10kt/a) | % of primary processing capacity | Processing capacity (10kt/a) | % of primary processing capacity | |
Primary processing capacity | 79 155 | 80 915 | 83 140 | |||
Secondary processing capacity | 74 511 | 94.13 | 80 431 | 99.4 | 87 301 | 105 |
Catalytic cracking | 20 901 | 26.41 | 21 711 | 26.83 | 22 131 | 26.62 |
Delayed coking | 10 051 | 12.7 | 10 311 | 12.74 | 10 531 | 12.67 |
Catalytic reforming | 5 735 | 7.25 | 6 905 | 8.53 | 9 085 | 10.93 |
Hydrocracking | 6 634 | 8.38 | 7 304 | 9.03 | 8 944 | 10.76 |
Hydrofining | 31 190 | 39.4 | 34 200 | 42.27 | 36 610 | 44.03 |
The transformation and upgrading of teapot refineries accelerated and developed in a differentiated manner. First, advanced independent refineries accelerated their rise, such as Hengli Petrochemical, Zhejiang Petrochemical, Shenghong Petrochemical, etc. (Table 4). The second is the accelerated integration of small and medium-sized refineries. For the refineries with capacity of 5 million t/a or less, Shandong Province carried out the reduction and integration transfer by batches and steps, planning to reduce the refining capacity by 1/3 by 2025. The extension to the downstream accelerated. Large-scale integrated refining and chemical projects were set up to build a high-end petrochemical industry and a cluster of characteristic industries to promote the high-quality development of Shandong refining industry.
Table 4 New refining capacities of large-scale private refineries in the future
Launching time | Company | Province | New capacity (10kt/a) | Construction progress |
2018 | Hengli PC | Liaoning | 2 000 | Coming on stream soon |
2019 | Zhejiang PC (Phase 1) | Zhejiang | 2 000 | Under construction |
Before 2025 | Shenghong PC | Jiangsu | 1 600 | Construction started |
Zhejiang PC (Phase 2) | Zhejiang | 2 000 | In planning | |
Yihong Petroleum Chemical | Hebei | 1 500 | Sea-use public announcement | |
Huatong Jinggang Chemical | Hebei | 1 600 | Foreign capital, sea-use public announcement | |
Shida Technology | Shandong | 1 500 | Approval | |
Xinhua PC | Hebei | 2 000 | EIA public announcement | |
After 2025 | Dalian Fujia | Liaoning | 2 000 | Contract signing |
Liaoning Haicheng | Hebei | 2 000 | Contract signing | |
Xuyang Group | Hebei | 1 500 | Secondary EIA |
4. Revitalization of alternative energy due to the rebound in oil prices
In 2018, as oil prices rebounded, alternative energy competition developed again. In terms of coal-to-oil, preparation works of projects of Shenhua Ningmei Phase II, Shenhua Erdos, Yankuang Yulin Phase II, Yitai Yili, and Yufu Bijie all carried out. In terms of fuel ethanol, the State Council executive meeting decided to further expand the use of ethanol gasoline for vehicles, and further expand to 26 provinces and cities on the basis of the original 11 pilot provinces. The sales volume of new energy vehicles continued to grow rapidly. The cumulative sales volume from January to November was 1.03 million units, a year-on-year increase of 69.1%. According to the calculation of the holding number of new energy vehicles, which is about 2.8 million, the annual replacement fuel in 2018 was about 2 million tons.
In 2019, the net capacity growth of the refining industry is expected to reach 32 million t/a, and the total refining capacity of the whole country will reach 863 million t/a. The new capacity mainly comes from Zhongke Refining, Zhejiang Petrochemical and teapot refineries. Backward capacities will continue to withdraw (Table 5). Private refining capacities will further increase to 235 million t/a, accounting for 27.2%. The number of refineries with capacity over 10 million t/a will increase to 29, including two private enterprises.
Table 5 China's new refining capacity in 2019
Participant | Company | Location | New capacity (10kt/a) | Remark |
Sinopec, Kuwait | Zhongke Refinery | Zhanjiang, Guangdong | 1 000 | Newly built |
Rongsheng, Juhua | Zhejiang PC (Phase 1) | Zhoushan, Zhejiang | 2 000 | Newly built |
Teapot refineries | Shenchi Chemical | Shandong | 500 | Newly built |
Xinyue Fuel Chemical | Shandong | 350 | Newly built | |
Xintai PC | Shandong | 350 | Newly built | |
Backward capacities eliminated | -1 000 | |||
Total | 3 200 |
As the market expands further, foreign investment will accelerate its entry into the field of refining and oil sales. In the refining field, BP will build its third phase of a 200 000 tons’ oil blending plant in Tianjin; Shell will build its second phase 10 000 tons refinery catalyst project in Qingdao. In the field of oil product sales, BP will build 1 000 gas stations in China in the next five years, and Shell also plans to build gas stations on a large scale.
In addition, crude oil processing and refined oil exports will continue to grow. It is estimated that China's crude oil processing volume will reach 634 million tons in 2019, an increase of 4.7% year-on-year, with the increase mainly from Hengli Petrochemical, Zhejiang Petrochemical, Zhongke Refinery and new teapot refineries. The average operating rate of refineries in the country will rise to about 74%; the output of refined oil will reach 379 million tons, up 3.8% year-on-year; the net export volume of refined oil will reach 48.6 million tons.