China’s Oil Giant Sees New Refineries Threatening Global Profits

China’s ever-expanding oil refining capacity will increase competition among crude processors around the world and weigh on their margins, the nation’s biggest energy producer said.

Refining capacity will reach 900 million tons this year and rise to 980 million tons by 2025, according to a report from Economics & Technology Research Institute, which is affiliated with China National Petroleum Corp. Capacity will outstrip local demand by at least 160 million tons a year by 2025, CNPC said.

A frenzy of refinery building means China is on track to surpass the U.S. as the world’s biggest crude processor this year, while a government drive to de-carbonize the economy will weigh on demand growth for fuels like diesel and gasoline later in the decade. The growing imbalance between supply and consumption in China is set to lead to an increase in its fuel exports.

In the shorter term, worldwide refining margins will be under pressure as global production is gradually restored following the pandemic, CNPC said in the report. It forecast China’s net fuel exports will jump by 32% to 54.7 million tons this year. Domestic demand for diesel, gasoline and kerosene will peak at around 376 million tons in 2025 and then plateau from there, the Chinese energy giant said.

Processing capacity at China’s independent, or non-state-owned refiners, will account for 29.2% of the total this year, CNPC said. A total of 34 refiners in the country will have capacity of over 10 millions tons a year, it said.

Here are the new Chinese refining projects listed by CNPC through 2025:

Refinery NameOwnerProvinceNew Capacity (yearly)Progress
Shenghong PetrochemicalShenghongJiangsu16m tonsStart in 2021
Other private refineriesXinhai, KaiyiHebei11m tonsStart in 2021
Sinopec Zhenhai RefinerySinopecZhejiang15m tonsStart in 2022
Sinopec Hainan RefinerySinopecHainan5m tonsStart in 2022
PetroChina Jieyang RefineryPetroChinaGuangdong20m tonsStart in 2022
Yulongdao Petrochemical ComplexNanshan, WanhuaShandong20m tonsStart in 2022
Sino-Kuwait JV Refinery (Phase II)SinopecGuangdong10m tonsIn Planning
Hengli Petrochemical Complex (Phase II)HengliLiaoning20m tonsIn Planning
Yulongdao Petrochemical Complex (Phase II)Nanshan, WanhuaShandong20m tonsIn Planning

China is expected to process 705 million tons of oil this year, a 4.5% increase from 2020. The rise in throughput can be mostly attributed to Zhejiang Petroleum & Chemical Co. and the Sino-Kuwait joint venture refineries. Nationwide, run rates are forecast to average 78% as some plants are phased out, up from 76% last year, according to CNPC.

©2021 Bloomberg L.P.

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