The US has been at the top of the refining industry since the mid-nineteenth century when the oil age began. However, in a report by the International Energy Agency, China is set to take the crown by as early as next year. China is investing tens of billions of dollars to build new mega refineries even as fuel demand stalls due to the coronavirus pandemic. At least four projects comprising about 1.2 million bpd of crude processing capacity are being developed in places such as Zhejiang, Jiangsu, and Yantai. These additions alone are equal to the UK’s total refining capacity.
China’s crude processing capacity has tripled since the 2000s. Last year alone, the country added about 1 million bpd capacity. Analysts said that China’s fuel production had exceeded domestic requirements, leading to exports of about 1 million bpd. China National Petroleum Corp.’s Economics & Technology Research Institute forecast that the country’s overall refining capacity would increase to 20 million bpd by 2025 from 17.5 million bpd by the end of this year.
These new facilities are geared to focus more on petrochemical production rather than transportation fuels that will likely be a concern for petrochemical and plastic plants in Taiwan and other East Asian countries that were built to meet Chinese demand. Despite the focus on petrochemical output, declining domestic demand raises the risk these refineries will flood the region with cheap exports. The new supplies from China are expected to put even greater pressure on smaller, older, and less-sophisticated refineries in the Asia Pacific region.
In contrast, American and European refiners are expecting to cut their crude throughput to focus more on low-carbon energy. Royal Dutch Shell plans to sell eight of its existing fourteen refineries. However, the company said it would shut them if it failed to find a buyer. Among plants that will be shut is Shell’s Convent refinery in Louisiana. Unlike many refineries shut previously, Convent is fairly large by US standards and sophisticated enough to produce high-value refined products. It was opened in 1967 when the US had 35 times the refining capacity of China.
However, analysts warn that China’s rapid refining expansion is outpacing domestic fuel demand growth. According to CNPC, China may experience oil products oversupply of 1.4 million bpd in 2025. By that year, China’s fuel consumption is expected to peak before gradually slowing under the country’s long transition toward carbon neutrality.
