Shandong's refinery run rates head south ahead of Winter Olympics, Lunar New Year

China's Shandong independent refineries have gradually started to cut crude throughput from around Jan. 22 in response to a directive to cap utilization below 70% during the Winter Olympics, as Beijing aims to ensure that emissions remain under control, refinery sources told S&P Global Platts on Jan. 23.

But some refinery sources believe the overall impact will not be much more than what occurs every year since the Winter Olympics will be held around the Lunar New Year holidays, when independent refineries are forced to cut crude throughput due to logistics and manpower constraints.

The upcoming Winter Olympics will be held over Feb. 4-20 in Beijing, which is not far from Shandong province, while the Lunar New Year holidays will begin from Jan. 31 and last for more than a week.

A Dongying-based independent refinery source said the plant had already started to cut crude throughput, as stocks of oil products have been piling up since logistics issues are starting to emerge, with the holidays approaching.

He added that the refinery, which currently runs at around 90% of its capacity, will gradually reduce rates to around 70% during the event, in line with the directive.

"Gasoil stocks have been rising as work at construction projects is gradually slowing, with workers leaving for home for the coming Lunar New Year holiday," an analyst in Shandong said.

The analyst had earlier said the average run rate could fall below 60% at the lower end if all independent refineries adhered to the directive and cut their respective run rates to below 70%.

Run rates capped based on criteria

The Shandong-based independent refineries received official notice from their respective government authorities over the past few days to cut the utilization rate during the Winter Olympics.

The operation rates of independent refineries during that period will depend on certain criteria specified by the local environmental protection authorities and could be different for each refinery, sources said.

A refinery could have been requested to cap utilization at 70%, and another at 80%, while a third refinery might have to completely suspend operations. Relatively new refineries, built over the past 10 years with higher environmental protection standards, could continue to operate at 80%, while older refiners with lower environmental protection standards face stricter guidelines.

In addition, the mandate covers two time periods -- one from Jan. 28 to Feb. 20, and another from Feb. 27 to March 13 -- 39 days in total.

"The operation rates during Feb. 21-26 will probably remain largely stable compared with that in the previous days, if the refining margins remain unchanged. Also, the period will be too short to kick up run rates," a source with a Dongying-based independent refinery said.

Current run rates in Shandong

There were about 21 independent refineries that operated at over 70% capacity in December, according to a survey by local information provider JLC, which covered 43 of the plants in Shandong.

But fewer refineries will likely run at rates above 70% in January, given that the weekly run rates at Shandong's independent refineries have slowly started to drop over the past three weeks from 66.4% to 64.5%, according to JLC.

"Some refineries have already started to trim run rates ahead of the Olympics, while a few have shut for maintenance," another analyst said.

The monthly average run rate of the 43 independent refineries as compiled by JLC will be released in early February.

On the other hand, some refineries, which had originally planned to shut for maintenance in February, will likely postpone the maintenance and remain in operation, market sources said.

Shenchi Petrochemical, which had initially planned to shut in early February, is likely to shut after the Olympics, as maintenance is not allowed during the event.

Since there are threats of outages at refineries when they are restarting from or shutting for maintenance, it is safer to shut after the directive period, sources said.