With the completion of Hengli Petrochemical’s 20 million tons/year refining capacity, China’s refining capacity reached 831 million tons/year by the end of 2018. On January 16, the China Petroleum Economic and Technological Research Institute released the Report on the Development of Oil and Gas Industry at Home and Abroad in 2018 (hereinafter referred to as the “Report”), pointing out that, judging from the comprehensive scale, product quality, energy consumption and integration level, the domestic refining capacity in 2018 was at least 190 million tons per year surplus.
With the rapid growth of refining capacity, the domestic refining industry must accelerate the transformation and upgrading, and further take the road of high-quality development. At the same time, the rise of private advanced refineries and the integration and transfer of traditional local refineries will continue to affect the overall pattern of the refinery industry.
Rapid Rise of Large-scale Geotechnical Refining as the Main Force of New Capacity Increase
According to the data of the Report, in 2018, Hengli Petrochemical Company had 20 million tons/year refining capacity, and China added 33.9 million tons/year refining capacity. At the same time, according to incomplete statistics, six local refineries, such as Haike Chemical, Xinhai Petrochemical and Kokoda Petrochemical, have eliminated a total of 11.65 million tons per year of refining capacity. In total, China’s annual net oil refining capacity increased by 22.25 million tons per year, with private refineries as the main growth force.
From the data, it can be seen that the transformation and upgrading of local refineries are accelerating and showing a trend of differentiation. With the strong support of the local government, some large private enterprises listed in the top 500 of China continue to promote the construction of large-scale refining and petrochemical integration projects with bases, scale, advanced technology and “main oil and auxiliary”. In 2018, Hengli Petrochemical will build 20 million tons/year refining capacity; in 2019, Zhejiang Petrochemical (Phase I) will be built, adding 20 million tons/year refining capacity. By 2020 alone, with these two enterprises, China will add 40 million tons/year refining capacity.
The report points out that with the successive production of large-scale local private refining projects, China’s crude oil processing capacity will increase by 32 million tons per year in 2019, its total refining capacity will reach 863 million tons per year, and its excess capacity will rise to 120 million tons per year. The refining capacity of private enterprises will increase to 235 million tons per year, and the proportion of refining capacity in China will increase to 27.2% from 25.6% last year. The number of ten million tons of refineries in China will increase to 29, of which two are from private enterprises and the scale is world-class.
The data show that Shenghong Petrochemical Company has built 16 million tons/year refining capacity, Zhejiang Petrochemical Company (Phase II) 20 million tons/year refining capacity is under planning, 15 million tons/year petrochemical industry and 16 million tons/year refining capacity of Huatong Jinggang Petrochemical Company are being publicized by the sea, the latter is for introducing foreign investment projects, 20 million tons/year refining capacity of Xinhua Petrochemical Company is being publicized by environmental assessment, and Shida Science and Technology 15 million tons/year refining capacity is being publicized. Ten thousand tons/year refining capacity has entered the approval stage. These capacity may be released by 2025.
Accelerate the integration of backward production capacity and accelerate the elimination of small and medium-sized refineries
With the rise of large private refineries, some small and medium private refineries are accelerating their integration. Shandong Province is the centralized area of China’s georefining, with the production capacity exceeding 60% of the total capacity of georefining. The largest sales area of refined oil in Shandong Province is Shandong Province. Outward radiation can be transported by steam to North and Northeast China, by rail to Northwest and Southwest China, and by water to East and South China.
In recent years, the state has gradually increased its efforts to eliminate and integrate backward refining capacity. On January 9, 2018, China issued the Notice on the Special Treatment of Serious Violations and Breaches of Credit in the Oil Refining Field, which focused on the treatment of serious violations in capacity building, safety, environmental protection, energy conservation, quality, taxation and operation of petroleum products produced from crude oil and fuel oil by processing and refining. Enterprises with dishonest behavior. The circular further implements the industrial policy requirements of “Guiding Opinions of the General Office of the State Council on the Structural Adjustment of the Petrochemical Industry to Promote Transformation and Increase Benefits”, “Guiding Catalogue of Industrial Structure Adjustment (2011 edition) (Amendment)” and “Planning and Distribution Plan for the Petrochemical Industry” (Development and Reform Industry  2208), and strictly prohibits the construction of new and expanded refining units without authorization.
According to the statistics of the China Petroleum and Chemical Industry Federation, in the first half of 2018, the number of enterprises of more than 1666 sizes decreased nationwide. Among them, there are 1288 refining and chemical enterprises (123 refining and 1565 chemical enterprises).
Also at the beginning of the year, the announcement on issues related to the levy and management of refined oil consumption tax (State Administration of Taxation Announcement No. 1, 2018) blocked tax avoidance loopholes in raw materials. The VAT reform implemented in May has blocked the tax avoidance loopholes in the factory to a certain extent and further rectified the market.
Due to the intensification of renovation efforts, Shandong Geotechnical Refining has also developed differently. According to the principle of “optimization and restructuring, reduction integration, high pressure and low pressure, and integration of refining and chemical industry”, Shandong Province will transfer the reduction integration step by step for local refineries with refining capacity of 5 million tons per year or less, and the reduction and reduction refining capacity will be 1/3 by 2025. At the same time, refineries have accelerated downstream extension, from “one oil dominant” to “both oil and petrochemical” transformation.
Take a differentiated and environmentally friendly road to cope with fierce market competition
The pattern of diversified competition has been formed and will develop with the further development of China’s petrochemical industry. In the oil refining field, BP will build a new 200,000 tons/year lubricating oil blending plant in Tianjin in the third phase, and Shell will build a 10,000 tons project in Qingdao in the second phase of refining catalyst. In the field of oil sales, BP will build 1000 gas stations in China in the next five years. Shell also has plans to build large-scale additional gas stations.
For refining and chemical enterprises, under the increasingly fierce market competition, we must continue to vigorously eliminate backward production capacity, strictly control the increment, and replace backward production capacity with advanced production capacity. For the whole refining industry, we should continue to promote the construction of refinery bases, parks and regionalization. It is suggested that some fuel refineries should turn to material refineries in combination with the characteristics of crude oil and equipment, and pay attention to the development of differentiation and specialization.
It should be noted that 2018 has been described by many media as the “environmental storm” year. In the new year, the intensity of environmental renovation will not decline. Over the past year, China’s main refineries have completed the upgrading of oil quality and the replacement of oil products. Some local refineries also have the ability to produce the 6-standard refined oil by introducing advanced technology. In 2019, China will supply all kinds of gasoline and diesel oil to the country 6. Refineries should arrange reasonable dispatch and replacement of gasoline and diesel oil to achieve a smooth transition.
At the same time, the report pointed out that domestic refineries should continue to promote energy saving and emission reduction, and promote advanced energy-saving technologies, such as enhanced coke burning in catalytic cracking units, high-efficiency stripping in catalytic cracking units, and accelerate the upgrading and transformation project construction, such as focusing on sewage treatment upgrading, sulfur and yellow tail gas treatment and other special treatment projects.