Skip to main content

China’s downstream industry

Hydrocarbon Engineering,


China’s refining industry has embarked on a major expansion programme to increase the share of liquid fuels and other refined products supplied by domestic refineries.

In spite of the economic downturn, and assisted by the new pricing mechanism, China’s oil refining industry reported a profit last year. China’s refining capacity reached 480 million tpy (9.6 million bpd) at the end of 2009. In addition to the country’s large oil refiners, the refining sector includes almost 100 smaller refineries, which together account for an estimated 90 million t or 1.8 million bpd; equivalent to almost 20% of China’s refining capacity.

To attract further investment in oil refining and other downstream oil activities, and to avoid large payments to bail out state run refining companies, the government decided to launch a fuel tax and reform China’s oil product pricing mechanism in December 2008 by linking domestic retail oil product prices more closely to the international crude oil market.

Oil consumption and production
According to the International Energy Authority (IEA), China’s oil consumption will continue to grow this year with oil demand projected to reach 8.2 million bpd in 2010. By contrast, China’s domestic oil production is believed to have remained flat at approximately 4 million bpd in 2009. The country’s proven oil reserves stood at 16 billion bbls at the start of 2009. China is now the world’s second largest oil consumer after the US. The Middle East is the largest source of China’s oil imports with Africa being another important source. In 2008 China imported approximately 3.6 million bpd of crude. According to the IEA, oil accounts for 20% of total energy consumption in China and is the second largest energy source after coal.

Three state owned companies tower above
China’s downstream oil sector is dominated by three state owned companies at present, though more players are interested in developing large modern refineries. China National Petroleum Corporation (CNPC) and China Petroleum and Chemical Corporation (Sinopec) are the two largest refiners following a government reorganisation programme from 1994 - 1998, which resulted in most state owned oil and gas assets being reorganised under the two companies.

New refineries and plant expansions
Four new refineries have opened in China during the past two years adding a further 700 000 bpd to the refining industry’s total capacity, while a number of refinery upgrade and expansion schemes have also been completed. Two new refineries opened last year adding a combined 400 000 bpd refining capacity.

Overseas operations
According to industry sources, CNPC plans to build 400 000 bpd of additional refinery capacity by 2011. The company also has started investing overseas in refining capacity and is looking for further investment opportunities to move downstream and increase its trading activities. In addition, CNPC’s overseas oil and gas operations have the combined capacity to produce 1.4 million bpd of oil and 10 billion m3/y of natural gas, though actual production levels have not been revealed nor what share of production CNPC is entitled to.

Expanding medium and large scale capacity
In the nearer term the National Energy Authority has a target of expanding the country’s large and medium scale refinery capacity to 8.8 million bpd by the end of 2011; a 27% increase compared with the end of 2008 when China had 53 medium and large refineries with a combined refining capacity amounting to approximately 6.4 million bpd.

Foreign investment fast developing
Meanwhile, foreign oil companies are also looking to invest in China’s refining sector now that government support has grown for the construction of large scale, modern refineries. A number of projects are under planning, all to be located in fast developing coastal provinces.

Sinochem emerges in fourth place
China’s state owned Sinochem Group is expected to form a joint venture to operate a new refinery now under construction at Quanzhou in Fujian Province. Originally a government oil and chemical trading company, and the monopoly oil importer, Sinochem’s activities have diversified during the past decade and the group now plans to become China’s number four oil company after Sinopec, CNPC and CNOOC.

David Hayes, Contributing Editor

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/26032010/china%E2%80%99s_downstream_industry/

 

Embed article link: (copy the HTML code below):