By Wang Zhao, Wang Neng, Liu Jie, SCI Oil Refining Industry Research Team
The operation of China’s oil market in 2023
1. Production, processing and import volume of crude oil have increased simultaneously
In 2023, China's economy experienced steady development, and the petrochemical industry developed with high quality. Major oil production data in China all maintained year-on-year growth. Figure 1 shows the trends in the output, processing, and import volume of China’s crude oil from 2021 to 2023.
Figure 1 The trends in the output, processing, and import volume of China’s crude oil from 2021 to 2023
1) The output of crude oil has shown steady growth. Data from the National Bureau of Statistics shows that the output of China's crude oil reached 156.72 million tons from January to September 2023, a year-on-year increase of 1.9%. With steady growth, China’s full-year crude oil output is expected to have reached 207 million tons in 2023, a 2% year-on-year increase. Throughout 2023, oilfield companies such as PetroChina, Sinopec, CNOOC and Shaanxi Yanchang Petroleum (Group) Co., Ltd. discovered multiple oil and gas fields in Tarim oilfield, Changqing oilfield, North China oilfield and others. These new discoveries have significantly increased the proven reserves of domestic oil and natural gas, ensuring the continued growth of China's crude oil production and maintaining it at a level above 200 million tons.
2) The processing volume of crude oil reversed its decline and rebounded in 2023. Data from SCI Information shows that the processing volume of China's crude oil from January to September 2023 was 557.4956 million tons, marking a 12.62% year-on-year increase. It is expected that the total processing volume for the entire year might have reached 750 million tons, a 12% year-on-year increase, reversing the downward trend in 2022.
3) The import volume of crude oil surged, and foreign dependence remained high. Data from the General Administration of Customs indicates that China's total crude oil imports from January to September 2023 were 424.27 million tons, a year-on-year increase of 14.6%. It is expected that the full-year imports might have reached a historical high of 580 million t/a, and China’s dependence on foreign crude oil is forecast to have remained above 70%.
2. The oil refining unit has been operating smoothly and various production indicators have maintained growth
From January to September 2023, the output of China's gasoline was 124.7028 million tons, a year-on-year decrease of 0.23%. The output of diesel was 164.9983 million tons, a year-on-year increase of 8.85%. The output of kerosene was 38.9185 million tons, a year-on-year surge of 61.28%. In 2023, the production of the refining industry was well-operated, and various production indicators maintained growth (see Figure 2). It is expected that the output of kerosene, residual oil, petroleum coke, alkylate, liquefied gas and other products might have increased by more than 10% year-on-year in 2023, especially the aviation fuel predicted to have achieved substantial year-on-year growth.
Figure 2 The trend of China’s output of 13 types of refining products from January to September 2023
As of September 2023, the operating load rate of China’s refineries’ atmospheric and vacuum distillation unit has reached 83.47% (see Figure 3). Among them, the average operating load rates of main and independent refineries were 84.64% and 81.33% respectively, a year-on-year increase of 8.65 percentage points and 5.34 percentage points respectively (see Figure 4).
Figure 3 The trend of the operating rates of atmospheric and vacuum distillation unit in China (2021-2023)
Figure 4 Operating load rate comparison of China's main and independent refineries (2022-2023)
3. Refined oil consumption has shown recovery growth, and foreign exports have increased significantly
According to data from SCI Information, China's consumption of refined oil increased by 11.58% year-on-year from January to September 2023 (see Figure 5). Specifically, gasoline increased by 6.83% year-on-year, diesel by 6.4% year-on-year, and kerosene by 90.69% year-on-year. SCI Information predicts that China's total demand for refined oil products is expected to have rebounded to more than 400 million tons in 2023, a year-on-year growth of more than 12%.
Figure 5 The trend of China's consumption of refined oil from 2022 to 2023
Data from the General Administration of Customs shows that China’s total refined oil exports were 28.1716 million tons from January to August 2023, a year-on-year increase of 72.26% (see Figure 6). Specifically, the export volume of diesel increased by 197.07% year-on-year, kerosene increased by 75.78% year-on-year, and gasoline increased by 16.01% year-on-year. China's refined oil exports are expected to have reached 39.5 million tons in 2023, a year-on-year increase of 14.85%.
Figure 6 The export volume of China’s refined oil from 2022 to 2023
At present, China's main export destinations for refined oil products include Singapore, the Philippines, Bangladesh, Malaysia, Indonesia, Australia, Mexico and Europe.
4. The total refining production capacity has decreased while the comprehensive refining capacity has increased
China's total primary crude oil processing capacity in 2023 is forecast to have reached 948.85 million t/a, a year-on-year decrease of 0.45% (see Figure 7), mainly because of the elimination and integration of some backward production capacities. Although the overall production capacity has declined, the average refining scale of domestic primary units has increased, reaching 6.41 million t/a.
Figure 7 Trends of China’s crude oil primary processing capacity from 2019 to 2023
In China's crude oil market, a diversified competition pattern has been formed, with PetroChina and Sinopec as the main players, and CNOOC, China National Chemical Engineering Group Corporation, China North Industries Group Corporation, independent refineries, etc. as supplements. Sinopec and PetroChina take the leading positions in the refining industry, with a refining capacity of 308.5 million t/a and 223.7 million t/a respectively. From the perspective of corporate layout, following the construction principles of being close to resource areas, sales markets, and coastal and riverine areas, China’s crude oil capacity has formed a tiered distribution with the East China as the main focus and the Central and West China as supplements. Specifically, East China, Northeast China, and South China are the areas where China's refining capacity is concentrated.
New integrated refining and chemical refineries are emerging rapidly, and the independent refinery’s refining capacity has reached 361.95 million t/a. The rise of new integrated refining and chemical refineries such as Hengli Group Co., Ltd., Zhejiang Petrochemical Co., Ltd., Shenghong Holding Group and Fujian Gulei Petrochemical Co., Ltd., is expected to increase the total integrated refining and chemical production capacity to 76 million t/a.
5. The advantages of oil refining integration have been improved, and the “reducing oil and increasing chemicals” policy has made remarkable progress
Currently, China has 28 large integrated refining and chemical enterprises, with atmospheric and vacuum capacity and ethylene capacity reaching 405.1 million t/a and 30.29 million t/a, respectively, accounting for 57.57% of China's total production capacity. In addition, the operating load rates of these companies are also higher than those of oil refining companies, revealing their competitive advantages in the industry (see Figure 8).
Figure 8 Trends in atmospheric and vacuum operating rates of China's refining and chemical integrated units from 2019 to 2023
To address the issue of overcapacity in refining, many companies have begun to seek to extend their industrial chains and develop integrated refining and chemical projects. The current planned projects include Shandong Yulong Petrochemical Co., Ltd., Fujian Gulei Petrochemical Co., Ltd., North Huajin Chemical Industries Co., Ltd., Tianjin TEDA-Nangang Development Group Co., Ltd., and Yueyang Petrochemical Co., Ltd. If these projects can be completed as scheduled, the total number of integrated refining and chemical companies is expected to increase to 33. Additionally, many independent refineries are also undergoing integrated refining and chemical upgrades to enhance their competitiveness and profitability.
Currently, the petrochemical industry is facing unfavorable factors such as rising raw material costs, declining corporate profits, excess production capacity, and sluggish market demand, which will likely intensify market competition in the future. Therefore, traditional oil refining companies must make transformation and upgrading, actively promote the strategies of "reducing oil and increasing chemicals" and "reducing oil and increasing specialties" to realize the transformation from fuel-based refineries to integrated refining and chemical refineries, increase the output of chemical raw materials, and increase the value of fine chemicals.
The prospect of China’s oil market
1. Oil refining capacity may undergo a new round of expansion and elimination peak, and the production capacity layout will be constantly improved
It is expected that China's refining capacity will enter a new round of expansion, and 85 million t/a will be released from 2024 to 2027 (see Table 1). At the same time, the government will further rectify the backward refining capacity of about 35 million t/a. China's primary processing capacity of crude is expected to maintain at 1 billion t/a, and the average size of oil refining will also be further increased.
The total primary processing capacity of domestic crude oil is expected to surge to 979.85 million tons in 2024, a year-on-year increase of 3.27%. The newly-added primary processing capacity will amount to 31 million t/a in total, including 20 million t/a from Yulong Island refining and chemical integration (Phase I) project and 11 million t/a from the expansion of Sinopec Ningbo Zhenhai Refining & Chemical Co., Ltd.'s oil refining and high-end synthetic new materials project.
In the future, the concentration and rational layout of the petrochemical industry will be further optimized. International petrochemical companies such as BASF, Shell, and ExxonMobil are actively developing integrated chemical production bases in Guangdong Daya Bay, Zhanjiang, Huizhou and other regions. Currently, China Shipping and Shell, BASF in Zhanjiang, Guangdong, and ExxonMobil phase I of ethylene projects are accelerating the construction pace and it is expected that these projects will be put into operation one after another in 2025. In the future, China's ethylene production capacity will further increase, forming three world-class industrial clusters led by large-scale refining and chemicals including the Pearl River Delta, Yangtze River Delta and Bohai Bay Greater Bay Area. Efforts will be focused on new olefins, aromatics, fine chemicals, new materials and other fields.
Refining capacity will become more oversupplied, and independent refineries may be eliminated at an accelerated pace. In the future, units without crude oil quotas and with atmospheric and vacuum production capacity of 5 million tons or less may face elimination. As a result, the gasoline and diesel output, as well as the operating load rates of independent refineries, may decline.
2. The rapid development of new energy impact the oil industry
The rapid spread of new energy vehicles is driving up the proportion of consumption substitution. In recent years, the vigorous development of new energy vehicles and liquefied natural gas (LNG) vehicles in China has had a substantial impact on the domestic refined oil industry, gradually strengthening their roles as substitutes for refined oil.
3. Extensive maintenance of refineries in 2024 may reduce the supply of refined oil
Based on historical maintenance data and refinery maintenance patterns, it is predicted that a large number of enterprises are about to undergo overall maintenance or the maintenance of specific units in 2024, including West Pacific Petrochemical Co., Ltd. Dalian, PetroChina Guangxi Petrochemical Co., Ltd., Sinopec Cangzhou Refining & Chemical Co., Ltd., PetroChina Sichuan Petrochemical Co., Ltd., PetroChina Ningxia Petrochemical Co., Ltd., PetroChina Jilin Petrochemical Co., Ltd., CNOOC Dongfang Petrochemical Co., Ltd., PetroChina Jinzhou Petrochemical Co., Ltd., PetroChina Jinxi Petrochemical Co., Ltd., CNOOC Daxie Petrochemical Co., Ltd., CNOOC Huizhou Refining and Chemical Co., Ltd., Sinopec Maoming Petrochemical Co., Ltd., Sinopec Zhenhai Refining and Chemical Co., Ltd., Sinopec Jinling Petrochemical Co., Ltd., Sinopec Qilu Petrochemical Co., Ltd., Fujian Refining & Petrochemical Co., Ltd., Sinopec Tianjin Petrochemical Co., Ltd., Zhongke (Guangdong) Refinery & Petrochemical Co., Ltd., Sinopec-Sk (Wuhan) Petrochemical Co., Ltd., PetroChina Dushanzi Petrochemical Co., Ltd., Zhejiang Petrochemical Co., Ltd., and other enterprises. Table 2 shows the details of the maintenance refineries of each refining and chemical group in 2024.
Overall, extensive maintenance is likely to result in production and supply shortages. With the stable development of the domestic economy and the continued growth in downstream petrochemical consumption, it is expected that the supply for domestic petrochemical resources may be tight.
4. It shall continue to promote the construction of major petrochemical projects, and chemical industry and new materials have become investment hot spots
On the one hand, it shall continue to promote the construction of major petrochemical projects and pay attention to differentiated development. In response to the fiercely competitive market environment, oil refining companies have continued to increase investment and upgrade the refining and chemical industrial chain in recent years. On the other hand, chemical industry and new materials have become investment hot spots.
In 2023, China's economy experienced steady growth, and the oil industry was well-performed in overall. Refineries had stable operation and their production indicators continued to grow. Petrochemical products achieved their de-stocking goals, and the supply and demand pattern of the entire petroleum industry presented a positive trend. Entering 2024, as large-scale refining and chemical projects and some chemical and new material projects gradually are put into production, the industrial layout will be more reasonable, and the domestic refining and chemical industry will have a healthier and more stable development trend.
