China's oil refining capacity saw the first decline of the past 30 years in 2015 thanks to elimination of outdated capacity, but it remains excessive, which would lead to continue growing exports of China's oil products. According to a report by CNPC Economic and Technology Research Institute (ETRI) released on Tuesday, China's oil refining capacity totaled 710 million tonnes by the end of 2015, a net decrease of 10.37 million tonnes from a year ago.
In 2015, China added 30.2 million tonnes of oil refining capacity and eliminated 40.57 million tonnes of outdated capacity, which included 38.07 million tonnes phased out by private refineries for exchange of license for importing and using crude oil. Sinopec, China's large oil refiner, also shut down 2.5-million-tonne refining capacity in 2015. In the same year, the operating rate of China's refineries averaged at 75.4 percent, rising slightly from that in 2014 yet apparently lower than the average international level of 84 percent.
Operating rate stayed at 86.2 percent in large state-owned refineries and 31.4 percent in private refineries. Combined crude refining volume of CNPC and Sinopec presented 75 percent total crude refining in China in 2015, down from the 77 percent in 2014. Calculated by a reasonable operating rate, there are 100-million-tonne/year surplus refining capacity in China, said Qian Xingkun, deputy head of CNPC ETRI The report forecasts that China's oil refining capacity would see a net increase 9 million tonnes to hit 720 million tonnes/year by the end of 2016.
In 2016, China is expected to add 30-million-tonne/year new refining capacity and eliminate 21-million-tonne outdated capacity. The expected increase of new refining capacity would come from CNPC's 13-million-tonne refining project in Yunnan, CNPC's 3-million-tonne expansion project in Karamay, Shenhua Ning Coal's 4-million-tonne coal-to-liquid project, and 10-million-tonne private refining capacity.
The decline in refining capacity in 2015 would not last long, and the excessive refining capacity may translate into excessive oil product supply, said Qian. The report also forecast that China's average annual growth of refining capacity would decrease form 3.9 percent in 2011-2015 to 2.5 percent in 2016-2020.
By 2020, China's refining capacity may hit 800 million tonnes/year with 80-million-tonne surplus capacity. Experts define China's refining capacity as structural surplus in low-end capacity. Product oil supply has grown looser year by year. In 2015, net exports of gasoline, diesel and kerosene hiked 32 percent on year to 19.73 million tonnes.
In 2016, China is likely to see more excessive supply of product oil with operating rate at refineries staying low and more intense competition in product oil market. Net exports of product oil may top 25 million tonnes in 2016, rising 31 percent from that in 2015. Crude refining is expected to grow 5.3 percent on year to 549 million tonnes due to increased crude refining by private refineries with license for importing crude oil, the report says.In 2016, China's product oil output is expected to increase 5.5 percent on year to 356 million tonnes, 25.85 million tonnes more than needed. The excessive supply would increase 5.32 million tonnes of gasoline, 11.65 million tonnes of diesel, and 8.88 million tonnes of kerosene, according to the report.
However despite favorable taxation policies, private refineries are becoming less active in exporting product oil, said Shan Lianwen, deputy head of CNOOC Economic and Technology Institute. Meanwhile, some overseas oil prices are more than 1,000 yuan/tonne lower than domestic prices, leading to increasing inflow of oil products, which require measures by Chinese government to crack down oil smuggling, said Shan.
According to the report, China's apparent consumption of product oil is likely to increase 3.9 percent on year to 330.3 million tonnes in 2016 with growth slowing down by 1.4 percentage points from 2015. Gasoline and kerosene demand would see fast but slower growth compared to sluggish diesel demand. The diesel-gasoline consumption ratio would drop from 1.5 in 2015 to 1.4 in 2016.
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