Although the Chinese oil market is subject to international currents, it has remained remarkably robust, and its oil sector continues to grow and expand both upstream and downstream. In the author’s assessment, Chinese refinery crude capacity currently stands at 8.2 million bpd, and approximately 4.1 million bpd of new crude capacity is either underway or planned by the year 2015. In the article, the author discusses China’s oil industry, with particular emphasis on the remarkable story of China’s refining industry and its participants.
Oil product demand
China is Asia’s largest oil market, with demand in 2009 estimated at 8.3 million bpd. The author forecasts that Chinese oil demand will average 8.7 million bpd this year. Transport fuels have captured a large share of the Chinese demand barrel. Gasoline and diesel demand are approximately 1.5 million bpd and 2.7 million bpd respectively. In all, Chinese oil product demand growth is expected to average over 6% per year during the 2005 - 2010 period.
Growth in the industry
The history of China’s refining industry is a remarkable tale, spanning five decades and more. The industry and the key players have changed over time, particularly in recent years as the economy has grown in size, sophistication, export orientation, and openness to foreign cooperation and foreign participation.
China’s petroleum refining capacity has expanded dramatically over time, particularly when viewed against the rest of the world.
The Chinese National Petrochemical Corporation, or Sinopec, was formed in 1983 to oversee the country’s refining sector. In its early years, Sinopec controlled the vast majority of Chinese capacity, and it was responsible for launching the programme of refinery modernisation and expansion that transformed the industry into Asia’s dominant refining centre. Although several new refining companies now operate in China, Sinopec controls over half of the capacity and has never ceased its campaign to expand and modernise its refineries. Sinopec also led the way in opening China to ‘foreign oil’.
The China National Petroleum Corporation (CNPC) was established in 1988 to oversee the upstream sector, though at the time several small refineries remained under its purview, notably those whose purpose was to provide fuel for oilfield operations. CNPC is China’s largest oil producing company, with a crude output of 2.75 million bpd (approximately 54% of the national total). Natural gas output is 7.22 billion ft3/d, approximately 82% of the country’s total.
Other Chinese refining companies
Some of China’s joint venture refineries include well known international majors such as ExxonMobil, Saudi Aramco, Shell and Total. Yet there are also a number of lesser known participants in the refining sector. A few small refineries in China remain under the control of various local governments, often with some sort of participation by Sinopec or CNPC. As the refining sector has grown, other players have emerged, including the China National Offshore Oil Company, or CNOOC.
The Sinochem Corporation, founded in 1950, is China’s largest trading company, dealing with a huge range of commodities through dozens of subsidiaries.
A little known but quite important Chinese oil refiner is the Shaanxi Yanchang Petroleum Group, established in 1905. This company is owned by the Shaanxi provincial government. It has extensive holdings in landlocked Shaanxi Province, and while its emphasis has been mainly on the upstream sector, the company also owns three refineries.
China has continued to amaze the world with the continued strength of its economy and its vital hydrocarbon industry. Hydrocarbon production has risen, and Chinese companies have expanded their presence around the globe in exploration and development.
The evolution of the Chinese refining industry surely must be one of the most remarkable stories in the entire global downstream sector. From humble beginnings, the Chinese industry is now Asia’s largest, and China is one of the few places in the world where refineries still are being built. The sophistication of the industry has grown enormously, product quality has improved and will continue to improve, and the number of players in the market has increased.
And while there is much to be said for export refining, Chinese refiners are finding their growing domestic market to be the best possible customer.
Subscribers can log in now and read Nancy’s full article in the September issue of Hydrocarbon Engineering.
Author: Nancy Yamaguchi, Contributing Editor, September 2010 Hydrocarbon Engineering
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/24082010/china_the_refining_colossus_of_asia/