Sinopec's Shanghai Petrochemical targets high runs to capitalize on low crude prices

Singapore — China's Sinopec Shanghai Petrochemical Co. plans to process 15.3 million mt of crude oil in 2020, up 0.7% from its realized throughput of 15.2 million mt in 2019, as the 16 million mt/year refinery strives to take advantage of low feedstock prices, a company executive said Thursday.

Shanghai Petrochemical is oil giant Sinopec's sole listed refinery, and its moves are typically representative of China's state-owned refineries.

"Middle East producers cut their OPS deeply recently, which we can benefit more from than others [refineries] as we heavily depend on crude supplies from the region," the company's Chief Financial Officer and vice GM Zhou Meiyun said during the company's 2019 results call.

Zhou said 83.4% of the crudes the listed refinery processed in 2019 were from the Middle East, including Arab grades from Saudi Arabia, Iraqi Basrah and Kuwaiti grades.

In contrast, Middle East crudes accounted for only 45% of China's total crude feedstock slate in 2019, according to S&P Global Platts estimates.

Saudi Aramco slashed the official selling prices of its crude exports for April, including making the biggest cut ever to Arab Light crude - $6/b -- for Asia in early March, and was quickly followed in cutting prices by Abu Dhabi's ADNOC, Iraq's SOMO, Kuwait's KPC and Iran's NIOC after OPEC and key ally Russia failed to agree to a production cut.

"As China's coronavirus has been under control, we expect domestic demand will recover soon," Zhou said.

Moreover, China's gasoline and gasoil prices were regulated and moved in line with crude prices, which would help to sustain refining margins with high run rates in the domestic market, he added.

However, the risk of throughput cuts remained as the coronavirus pandemic spread globally, Zhou noted.

Shanghai Petrochemical slashed its utilization rate to 79% in February and 83% in March from 96% in January, and processed at total 3.13 million mt of crude in the first quarter, S&P Global Platts' latest survey showed.

This means that in order to meet its current full year 2020 target, the refiner will have to operate at 100% of capacity for the rest of the year.

VLSFO TARGET

For oil products, Shanghai Petrochemical targets producing 400,000 mt of very low sulfur fuel oil in 2020, Zhou said.

Shanghai Petrochemical was the first refinery in China to produce VLSFO that met the International Maritime Organization's tightened marine fuel standards that kicked in January 1.

The refinery exported 37,800 mt of VLSFO in 2019 and is currently is able to produce 400,000-500,000 mt/year of the fuel, Zhou added.

"There is some facility bottleneck for VLSFO production and we plan to add a residual hydrotreater to lift the VLSFO production capacity to about 1.5 million mt/year in the future," Zhou said.

The refinery invested Yuan 38 million in 2019 to upgrade its facilities to produce VLSFO, according to Zhou.

The sale of Shanghai Petrochemical's oil products output contributed 48.98% of the company's net sales revenue of Yuan 88.06 billion ($12.45 billion) in 2019 as its gasoline, gasoil and jet fuel output rose 9.1% from 2018, its financial results showed.

The refinery exported 2.58 million mt of gasoil and jet fuel in 2019, Platts data showed, which accounted for around 45% of its total gasoil and jet fuel output.

Zhou said Shanghai Petrochemical will maintain exports at a similar pace in 2020.

Shanghai Petrochemical's refining targets:

(Unit: '000 mt)

Shanghai Petrochemical's crude sources:

Source: Company report