Sinopec's refining roadmap to feature petrochemical products, cleaner processes

Sinopec aims to pursue its refining expansion plans as well as find ways to make the business more competitive through valued-added product diversification and by phasing out aging units, while adopting processes that can contribute toward a lower carbon footprint, Chairman Ma Yongsheng said Aug. 30.

The world's top refinery by capacity will be looking to diversify into some petrochemical products to cushion against an anticipated slowdown in demand for oil products, while it aims to keep investing in upstream projects in line with Beijing's goal for future energy security.

"The company will focus on maintaining the overall refining capacity and be more competitive," Ma said during the interim result call. "The company considers restrictions and conditions needed for meeting the carbon peak and neutrality targets when planning key refining capacity construction."

Sinopec aims to be carbon neutral by 2050, 10 years ahead of the country's overall target of 2060.

By the end of 2020, Sinopec's refining capacity hit 296.9 million mt/year, or 5.98 million b/d, according to a company document.

The company is pursuing capacity expansion at its flagship Zhenhai Petrochemical to 38 million mt/year, from the current 27 million mt/year. Zhenhai has set a target to have a refining capacity of 60 million mt/year and 7 million mt/year of ethylene capacity by 2030, S&P Global Platts reported earlier.

"The new, integrated and big-scale capacity expansions will replace the aging ones to boost their competitiveness," an analyst with Sinopec told S&P Global Platts.

Sinopec aims to crack 126 million mt, or 5.03 million b/d of crude oil in the second half of the year. The company boosted throughput by 13.7% year on year to 126.11 million mt in H1 on the back of the 10 million mt/year Zhongke Petrochemical, which started operations in June 2020.

The refiner expects its throughput to hit 252 million mt for the whole year, exceeding the original target of 250 million mt set in March, as independent refineries reduce crude runs amid tight access to feedstocks.

Sinopec accounted for about 35.7% of China's crude throughput in January-June, according to data from the company and the National Bureau of Statistics.

Product exports fall

Sinopec expects the window for oil product exports to get tighter, senior vice president Ling Yiqun said during the call.

"But it will have limited impact on our refining business, as exports only account for a small proportion of our oil production volumes -- about 10%-15%" Ling said.

The company aims to cushion the impact from lower exports by ensuring that more of its products flow into the domestic retail chain, which will reduce its dependence on third-party suppliers, he added.

Sinopec has the biggest service station retail network in China, with 30,716 branded stations as of June 30. In addition to getting supplies from its own refineries, it also takes about 20%-25% of the barrels supplied to its retail network from independent refineries and state-owned peers.

Ling said Sinopec exported over 9 million mt of oil products in H1, down about 10% year on year, with traditional markets Hong Kong, Macao and Southeast Asia the main destinations.

Sinopec arranges oil product exports within quota limits to balance the domestic market, Ling added.

Less oil, more chemicals

As a response to the slowing down oil product demand growth, Sinopec said it would continue to transfer production yields from oil products to petrochemical products.

"The company aims to increase capacity for chemical products, lift market share, accelerate development and production of high-end and value-added chemical products and new materials," Ma said.

In H1, Sinopec's yield for key oil products -- gasoline, gasoil, and jet fuel/kerosene -- was 57% of the total throughput, down from 61% a year earlier.

The company has adjusted downward its 2021 domestic oil product sales target to 170 million mt, from the original goal of 183 million mt. It would achieve it by cutting sales 4.3% year on year to 86.36 million mt in H2.

Sinopec also saw a 19.5% year-on-year budget cut in H2 for the refining sector, in comparison to the 47.6% capital expenditure increase in the budget for the chemical sector in the same period.

Upstream push

Despite its strength in refining and chemicals, Sinopec aims to spend 39.2% of its H2 budget, or Yuan 42.84 billion ($6.62 billion), in upstream exploration and production.

The state-owned oil giant is looking to sustain crude production and boost gas output to secure China's energy supplies during the energy transition journey.

It aims to boost natural gas output by 13.1% year on year to 633.5 Bcf in H2, raising the 2021 production target to 1,217 Bcf, from the original plan of 1,203.4 Bcf.

Sinopec also aims to speed up domestic development of the Shunbei oil field, while lifting productivity at its aging oil fields.

However, it has adjusted its 2021 crude output target downward to 279 million barrels, from the original 280.82 million barrels, amid a 1.5% year-on-year production decline in H1.