China's top oil refiners are diversifying into alternative energy businesses on expectations that long-term regulations on carbon and greenhouse gas emissions would tighten, despite the country's near-term focus on energy security, executives said at the Asia Pacific Petroleum Conference organized by S&P Global Commodity Insights Sept. 26-28.
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The current global energy crisis had raised concerns about whether China would continue to pursue decarbonization goals, especially with energy infrastructure being viewed as strategic assets.
"For the carbon emissions target, it is not what somebody asks China to do, but what China wants to do," said Wu Qiunan, chief economist with PetroChina International, a subsidiary of state-run PetroChina Co. Ltd.
Wu said the central government is not only strengthening climate policies but also expanding the focus to develop a clean energy ecosystem from solely cutting carbon emissions. These include tightening controls over water pollution and other air pollutants.
"From design to construction [of new refining capacities], we are fully committed to the new technologies to control environmental pollution. Going forward, any new investment that we are going to make will be more efficient in environment protection," said Chen Hongbing, deputy general manager with privately-held Rongsheng Petrochemical (Singapore).
"We need to be at least half a step ahead in today's market. We started to invest in solar PV and wind power five years ago, and following the 14th Five Year Plan's call, we have developed more extensive plans on new energy, new material and decarbonization," said Sun Xin, director of Shenghong Petrochemical, an emerging private refining and petrochemicals company.
China's refining and petrochemicals industries face both internal and external pressures to curb emissions.
Domestically, the government has set rigorous targets to limit energy consumption, especially for emissions-intensive industries. Externally, the EU's Carbon Border Adjustment Mechanism is expected to tax carbon-intensive imports in a few years.
Rongsheng's Chen said the refiner's business strategy is always driven by economics, but the industry expects emissions regulations to lower China's exports and more research is needed to assess whether cross-border carbon taxes will fully halt refined products exports or only impact a small volume.
"I believe, at the end of the day, the government will still encourage the refiners and the prices of the exports are subject to economics," Chen said.
PetroChina's Wu said China will shift from controlling total energy consumption to controlling carbon emissions. If an emissions cap substitutes the consumption cap, there will be no constraint on renewable energy consumption, and the energy sector will accelerate its green transformation.
Government bodies are still working on how to implement emissions controls so, this year, refiners are still following a total energy consumption control policy, Wu added.
Diversification strategies by Chinese oil refiners are taking various forms.
Shenghong's Sun said his company owns China's largest project for producing ethylene vinyl acetate film -- a key component of solar PV panels that saw rapid export growth this year.
Shenghong has also collaborated with Iceland's Carbon Recycling International to capture carbon emissions from daily operations and use it for methanol production, and has invested in energy storage technologies, he added.
PetroChina's Wu and Sun both said refining and petrochemicals industries provide materials and components to manufacturers of electric vehicles, solar PV modules and wind turbines, and those products' exports imply "indirect exports" for the sectors.
PetroChina has invested in carbon capture, utilization and storage projects, hydrogen production bases and refueling stations.
Compliance carbon market
Emissions from refining and petrochemicals production is due to be covered by the national compliance carbon market by 2025, according to China's environment ministry.
China's national compliance market was launched in July 2021, and first covered utilities. The current system covers all thermal power plants with emissions above 26,000 mtCO2e/year. Hence, some captive power plants owned by oil companies have already been enrolled into the compliance emissions trading program.
It remains unclear when the refining and petrochemicals companies will be fully enrolled into the carbon market, Chen said on the sidelines of the conference.
Zhejiang Petroleum, a refining and petrochemicals company jointly established by the provincial government and Glencore Asian Holdings, has formed a carbon asset management subsidiary and is actively looking at carbon trading opportunities in Singapore, an executive said.