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China's Shandong private refineries to keep minimum throughput amid power rationing: sources

Highlights

Units shut due to power rationing mandate

September throughput likely at 9.5 mil mt

Crude import quota allocation likely to be reduced, delayed

China's independent refineries in Shandong are expected to keep their crude throughput to a minimum in the near term in order to comply with the provincial government's latest power conservation mandate, putting pressure on the sector's crude oil demand and imports, refinery and trading sources told S&P Global Platts Sept. 29.

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More than a dozen Chinese provinces imposed electricity rationing mandate to critical industrial sectors in recent weeks, in an effort to conserve fuel ahead of the peak winter heating and power demand season, while higher coal and gas prices have limited power generation capacity. The power rationing measures were also aimed to get industries to meet energy consumption targets towards the end of the year.

Shandong, the home of China's small-scale independent refineries, is one of the provinces that imposed electricity rationing.

Refiners in Zibo and Dongying said they have to shut some of their secondary units from time to time due to low voltage of the power supply.

One Dongying-based refiner, which recently restarted after maintenance, had to cut their daily throughput by about 1,000-2,000 mt to around 10,000 mt due to the power shortage.

"Some of the cooling boilers have to be turned off due to the power shortage, capping oil product output to some extent," said another Dongying-based refinery source.

On top of the impact from the electricity rationing, Fuyu Petrochemical completely shut its 2.2 million mt/year units to transfer its capacity to the consolidated 20 million mt/year Yulong Petrochemical, which is due to come on stream in 2022.

The 3.5 million mt/year Haiyou Petrochemical had to shut its units just a few weeks after its restart from maintenance, due to the one-month-long environmental investigation by the government since Aug. 26.

Falling utilization

As a result, the weekly average utilization rate of the refineries declined to 64.8% Sept. 22 from 66.3% in the first week of September, local information provider JLC's survey on 43 refineries showed.

Their throughput, at the same time, is unlikely to recover in September from the 17-month low of 9.45 million mt in August despite resumption of operations in the 4.2 million mt/year Lianhe Petrochemical and 2.3 million mt/year Ruilin Petrochemical, refining sources said.

"It is unlikely for them to raise the crude throughputs any time this year," said an analyst with JLC.

The throughput cuts came a bit earlier than in previous years, extending the trend from late August when the refineries lowered crude runs during a month-long environmental inspection.

Typically, the private refineries in Shandong only cut their daily throughputs slightly during the National Day holiday over Oct. 1-7 to offset product inventory pressure in the plants when transportation restrictions are applied to limit their oil product sale logistics.

Pending quota allocation

Meanwhile, "the recent power rationing and mandates on cutting energy consumption also lead to more suspicion about a reduction in the next round of crude import quota allocation, or a delay in the allocation to mid October," said another source.

Independent refineries have been struggling due to the import quota shortage, which has also restricted their throughput due to limited feedstock.

Those affected include not only refiners in Shandong. The integrated Zhejiang Petroleum & Chemical in Zhejiang province also shut its third 10 million mt/year CDU in the week ended Sept. 24 due to feedstock shortage and the provincial government's mandate to cut energy consumption.

The refiners had expected the fourth round of quotas to be allocated in September.

It was widely expected that at least 19.8 million mt of quotas would be allocated in the last round, as at least 18 independent refineries were to get their remaining quotas of 13.3 million mt. In addition to this, around 6.5 million mt quotas were expected for ZPC's Phase 2 project and for the 16 million mt/year Shenghong Petrochemical in Jiangsu province, split between 4.5 million mt and 2 million mt, respectively, Platts reported earlier.