China to add 1.8 million b/d of new refining capacity in 2006-10

China to add 1.8 million b/d of new refining capacity in 2006-10

Hong Kong (Platts)--21Mar2006

The Chinese central government has set a target of adding 90 million mt
(1.8 million b/d) of new crude processing capacity under its mid- and
long-term plans for the country's oil refining and ethylene industries to be
implemented during its 11th Five Year Plan spanning 2006-2010.
The documents, which were released last week by China's top social and
economic policy planner National Development and Reform Commission, also said
the government would aim at eliminating small refineries and crude processing
facilities with low efficiency in regions where available refining
capacity is in excess. The goal is to close down about 20 million mt of such
crude processing capacity by 2010.
At the same time, Beijing will guide and encourage small refineries with
annual crude processing capacity of 2 million mt to process specialty refined
products. The documents however did not specify which products those might be.
Earlier this year, the NDRC said China had a crude processing capacity of
328 million mt in 2005. Actual crude throughput last year was 286 million mt,
up 7% year-on-year. Average operating rate of Chinese refineries was about
87%.

REFINING CAPACITY TO REACH 7.96 MILLION B/D BY 2010
Under the mid- and long-term plans, China's net increase in overall crude
processing capacity would be about 70 million mt to reach about 398 million mt
(7.96 million b/d) by the end of 2010.
The documents noted that the country's existing refining capacity is
centralized in eastern and northeastern China, which together accounted for
60% of the national total in 2004. Operating rate of refineries in these
regions were about 90% in 2004.
On the other hand, key domestic markets for refined products consumption
are in eastern, southwestern and southeastern provinces, accounting for more
than 50% of China's total products consumption. With such mismatch in domestic
supply and demand, products output from northeastern refineries always heads
south to meet oil demand there.
According to the 2006-2010 Chinese refining industry development plan,
the central government will in principle not allow expansion of primary crude
processing capacity in regions where refining capacity is in excess. Any such
expansion would only be carried out on the condition that existing small
refineries and crude processing facilities are closed down so that any
addition would not result in net capacity increase in the regions.

MULLING NEW REFINERIES IN GUANGXI, SICHUAN
As for those Chinese regions where there is a shortage in refined
products supply, the central government will focus on expansion and revamp of
existing refineries to improve their economy of scale. It will identify a
coastal location in southern Guangxi Zhuang Autonomous Region to develop a
refining base which caters to the processing of imported crudes. Beijing also
seeks to build a refining base in land-locked southwestern Sichuan province
for processing onshore crudes when the "time is ripe," the documents said.
In principle, the Chinese government would only allow the construction of
greenfield refineries with minimum annual crude processing capacity of 8
million mt.
Foreign investors interested in developing refinery projects in China
must have advanced technology know-how and crude feedstock procurement
capability. Moreover, the Chinese parties will hold a majority share in such
projects.

EIGHT NEW LARGE OIL REFINING BASES IN 2006-2010
Eventually, Beijing hopes to add another eight oil refining bases in the
country with crude processing capacity of more than 10 million mt/year during
2006-2010.
A greenfield 10 million mt/year (200,000 b/d) refinery project currently
developed by the state-owned China Petrochemical Corp Group in Qingdao city,
eastern Shandong province, is included in those eight bases, the documents
said. The refinery is a joint venture between Sinopec Group (85%) and the
Shandong and Qingdao governments (15%). Saudi Aramco is interested in taking a
minority share in the Qingdao refinery project and is currently negotiating
with Sinopec Group on the investment.
Overall the Chinese central government expects the establishment of more
than 20 refining bases with a minimum 10 million mt/year capacity throughout
the country by 2010, with their combined crude processing capacity accounting
for 65% of the national total. By then, the average size of Chinese refineries
would reach 5.7 million/year.
Moving in tandem with development of the refining industry is the
Chinese oil transportation and logistics segment. China intends to improve its
capacity to moving crude and refined products in bulk. With its increasing
demand for crude imports, Beijing will focus on building trans-national crude
import pipelines and domestic pipelines. It will speed up the construction of
deepwater berths which can handle 250,000 to 300,000 dwt tankers. It will also
build refined products pipelines which transport output from refineries in
northwestern, northeastern and eastern China to central, southwestern and
coastal markets.

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