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China's action plan for CO2 cuts to cap primary refining capacity at 20 mil b/d by 2025

Highlights

Country advances carbon peaking plan while boosting efficiency

Tough measures hurt utilization rates of small independents

Refinery consolidation in Shandong on the anvil

  • Author
  • Staff    Surabhi Sahu
  • Editor
  • Manish Parashar
  • Commodity
  • Coal Oil Petrochemicals
  • Topic
  • COP26

China is aiming to cap the country's primary refining capacity at 1 billion mt/year, or 20 million b/d, by 2025 while boosting utilization rates of its refining facilities to above 80%, according to the national carbon peaking action plan released by the State Council late Oct. 26.

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The move is in line with China's goal to trim its CO2 emissions while also ensure efficiency of its refining sector by weeding out aging infrastructure.

The same action plan also targets peak oil consumption for land-based transportation by 2030 and states that 40% of new vehicles should be powered by clean fuels in 2030.

Analysts in Beijing and Singapore said the capacity target is easy to achieve amid the government's efforts to push the industry to upgrade, consolidate and phase out low efficiency production capacities.

China's latest goal comes after a detailed action plan was released by its National Development & Reform Commission Oct. 21 to ensure the sector progresses on the right track.

Tightening up the country's refining capacity will help boost refining facilities' utilization rate, a Beijing-based analyst said.

"We estimate China's primary refining capacity to be at about 990 million mt/year in 2025 when demand for transportation fuel hits peak," a senior economist with Sinopec told S&P Global Platts Oct. 27.

Sinopec is the world's biggest refiner by capacity and also a key policy influencer of the industry.

The state-owned oil company said previously that China's refining capacity was 880 million mt/year in 2020 and will be 905 million mt/year in 2021. About 250 million mt/year new refining capacity will be added across the world in the next five years, with new capacity additions in China accounting for 40%-50% of that. As a result, China could become the world's top refiner by capacity by 2025.

Expanding its horizon

China is estimated to add 114 million mt/year of new refining capacity during 2021-2025, Platts data showed.

The key projects include the 20 million mt/year Zhejiang Petroleum & Chemical's phase 2 project, the greenfield 16 million mt/year Shenghong Petrochemical, PetroChina's 20 million mt/year Guangdong Petrochemical, the 20 million mt/year Yulong Petrochemical and Sinopec's 15 million mt/year expansion at its flagship Zhenhai Petrochemical.

Among these projects, Yulong Petrochemical is set to replace more than 27.5 million mt/year of small-sized independent refineries in Shandong as the local government's effort to consolidate and upgrade the industry in the province.

China's state-owned refineries run at an average above 80% of their primary capacity, while the integrated private plants' run rates usually are at more than 100%.

But the average utilization rate of the small-sized independents recently fell below 70% due to tough crackdown measures implemented by the government to curb various malpractices -- tax irregularities, illegal crude import quota trading, illegal capacity expansion and environmental compliance -- Platts previously reported.

Shandong refineries on consolidation mode

The crackdown has already led the Shandong provincial government to accelerate a plan to consolidate refineries with capacities under 5 million mt/year to cut the sector's capacity to 90 million mt/year by 2025 from 130 million mt/year in 2018. Shandong is home to China's small independent refineries.

Moreover, NDRC requires an operational halt for refineries with low energy efficiency, including crude distillation units of smaller than 2 million mt/year, according to a new series of action plans for key industries released in the week ended Oct. 23.

The NDRC's action plan aims to enhance energy efficiency and fast-track the country's peak carbon emissions and net-zero timeline targets.

It also proposes an "orderly exit" of low-efficient production capacities and prohibits the construction of further CDUs with capacity under 10 million mt/year, fluidized catalytic cracking units with capacity less than 1.5 million mt/year, and continuous catalyst regeneration reformers, including aromatics extraction units, with less than 1 million mt/year of capacity.

The NDRC said the actual energy consumption of a standard CDU in a refinery -- measured in terms of per kilogram of oil equivalent -- should be 8.5 kg of oil equivalent/mt multiple factor, while that of a flagship high efficiency model CDU should be 7.5 kgoe/mt multiple factor.

A prime example of a model plant would be Sinopec's 14 million mt/year Qilu Petrochemical complex in eastern Shandong province, which has an energy consumption of about 7.5 kgoe/mt multiple factor, according to a refinery source with direct knowledge of the matter.