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China issues guidelines under 14th 5-year plan to limit high-carbon product exports


Transportation fossil fuel exports expected to fall

Encourages directly cracking crude into ethylene

Refiners to leverage location to produce green hydrogen

  • Author
  • Analyst Oceana Zhou    Analyst Ivy Yin
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Coal Electric Power Energy Transition Natural Gas Oil Petrochemicals
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  • Energy Transition Environment and Sustainability Hydrogen: Beyond the Hype

China targets to set up a catalogue of high-carbon products from the refining and chemical industry to limit exports of some of these products, according to a 14th Five Year quality development guidelines for the sector published on April 7.

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This is likely to be Beijing's first five year plan targeting to limit high-carbon products from the industry amid China's carbon neutrality journey. This comes amid expectations that foreign countries may levy tariffs like the EU's Cross Border Adjustment Mechanism, or CBAM, on such products in the future.

Sinopec in late 2021 estimated that China's cost of exporting jet fuel, gasoil and fuel oil would rise 1.2%, 9.6% and 8.7%, respectively, to EU when CBAM is effective.

The guidelines mirror the control on oil product exports that have emerged since the second half of 2021, when the government started to slash export quota allocation for the high-carbon gasoline, gasoil and jet fuel.

In the first batch of export quotas for 2022, allocations have been chopped by 56% from the same period around a year ago to 13 million mt. This followed a steep drop to 37 million mt for the entire 2021 from 59.03 million mt for 2020.

Moreover, there has been market talk about Beijing's intention to cut the transportation fossil fuel exports to zero by 2025.

The guidelines were jointly issued by the Ministry of Industry and Information Technology, National Development and Reform Commission, Ministry of Science and Technology, Ministry of Ecology and Environment, Ministry of Emergency Management and National Energy Administration.

The targets in the guidelines cover technology innovation, industry structure adjustment, location optimization, digitalization, green and safe development during the 14th FYP 2021-2025.

More chemical products, less oil

The guidelines emphasize the long-term trend seen in product slate of the sector, which involves lifting chemical production yield, while reducing oil product yield and capping refining capacity expansion.

According to the national carbon peaking action plan released by the State Council last year, China targets to cap its primary refining capacity at 20 million b/d in 2025.

Chemical production, on the other hand, is a way to solidify carbon to cut emissions, according to the guidelines, which encourage technology research and development for directly cracking crude oil into ethylene and compounding gas into olefins during the 14th FYP.

However, while demand for petrochemical products slowed down, production capacity rose in 2021. As a result, China's oil product yield rebounded to 76.5% in January-February from 66.5% in the same period of 2021, data from National Bureau of Statistics showed.

Hydrogen, CCS and CCUS

The guidelines also require reduction in emission of volatile organic matters by over 10% from the level of 13th FYP, and encourage green hydrogen development, Carbon Capture and Storage, as well as Carbon Capture, Utilization and Storage.

China's hydrogen development plan, which was released on March 23, expects renewables-based hydrogen production to reach 100,000-200,000 mt/year by 2025.

The country's state-owned refiners have plans to leverage their location condition to develop solar or wind power to produce green hydrogen.

These include Sinopec's four green hydrogen projects -- the 20,000 mt/year solar-based project in Kuqa, Xinjiang, 10,000 mt/year wind- and solar-based project in Ordos, Inner Mongolia, 100,000 mt/year renewables-based project in Ulanqab, Inner Mongolia, and 10,000 mt/year offshore wind-based project in Zhangzhou, Fujian.

Meanwhile, CO2 emissions from petrochemical and coal-chemical units were considered as pure and low cost.

CCS can be used to produce carbon neutral hydrogen or blue hydrogen from coal and gas. Currently, China's coal-based hydrogen plus CCS costs around $2.40/kg, and gas-based hydrogen plus CCS costs around $4/kg, according to China Hydrogen Alliance.

The guidelines encourage capture and storing of CO2 emitted by the sector and using the gas to boost crude oil production or production of chemical products.