{"id":5215,"date":"2020-11-23T14:42:20","date_gmt":"2020-11-23T14:42:20","guid":{"rendered":"http:\/\/euromenaenergy.com\/?p=5215"},"modified":"2020-11-23T14:42:20","modified_gmt":"2020-11-23T14:42:20","slug":"china-is-set-to-eclipse-us-as-worlds-biggest-oil-refiner","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=5215","title":{"rendered":"China is set to eclipse US as world\u2019s biggest oil refiner"},"content":{"rendered":"
\n

Bloomberg\/Beijing<\/p>\n<\/div>\n

Earlier this month, Royal Dutch Shell pulled the plug on its Convent refinery in Louisiana. Unlike many oil refineries shut in recent years, Convent was far from obsolete: It\u2019s fairly big by US standards and sophisticated enough to turn a wide range of crude oils into high-value fuels. Yet Shell, the world\u2019s third-biggest oil major, wanted to radically reduce refining capacity and couldn\u2019t find a buyer.
\nAs Convent\u2019s 700 workers found out they were out of a job, their counterparts on the other side of Pacific were firing up a new unit at Rongsheng Petrochemical\u2019s giant Zhejiang complex in northeast China. It\u2019s just one of at least four projects underway in the country, totalling 1.2mn barrels a day of crude-processing capacity, equivalent to the UK\u2019s entire fleet.
\nThe Covid crisis has hastened a seismic shift in the global refining industry as demand for plastics and fuels grows in China and the rest of Asia, where economies are quickly rebounding from the pandemic. In contrast, refineries in the US and Europe are grappling with a deeper economic crisis while the transition away from fossil fuels dims the long-term outlook for oil demand.
\nAmerica has been top of the refining pack since the start of the oil age in the mid-nineteenth century, but China will dethrone the US as early as next year, according to the International Energy Agency. In 1967, the year Convent opened, the US had 35 times the refining capacity of China.
\nThe rise of China\u2019s refining industry, combined with several large new plants in India and the Middle East, is reverberating through the global energy system. Oil exporters are selling more crude to Asia and less to long-standing customers in North America and Europe. And as they add capacity, China\u2019s refiners are becoming a growing force in international markets for gasoline, diesel and other fuels. That\u2019s even putting pressure on older plants in other parts of Asia: Shell also announced this month that they will halve capacity at their Singapore refinery.
\nThere are parallels with China\u2019s growing dominance of the global steel industry in the early part of this century, when China built a clutch of massive, modern mills. Designed to meet burgeoning domestic demand, they also made China a force in the export market, squeezing higher-cost producers in Europe, North America and other parts of Asia and forcing the closure of older, inefficient plants.
\n\u201cChina is going to put another million barrels a day or more on the table in the next few years,\u201d Steve Sawyer, director of refining at industry consultant Facts Global Energy, or FGE, said in an interview. \u201cChina will overtake the US probably in the next year or two.\u201d
\nBut while capacity will rise is China, India and the Middle East, oil demand may take years to fully recover from the damage inflicted by the coronavirus. That will push a few million barrels a day more of refining capacity out of business, on top of a record 1.7mn barrels a day of processing capacity already mothballed this year. More than half of these closures have been in the US, according to the IEA.
\nAbout two thirds of European refiners aren\u2019t making enough money in fuel production to cover their costs, said Hedi Grati, head of Europe-CIS refining research at IHS Markit. Europe still needs to reduce its daily processing capacity by a further 1.7mn barrels in five years.
\n\u201cThere is more to come,\u201d Sawyer said, anticipating the closure of another 2mn barrels a day of refining capacity through next year.
\nChinese refining capacity has nearly tripled since the turn of the millennium as it tried to keep pace with the rapid growth of diesel and gasoline consumption. The country\u2019s crude processing capacity is expected to climb to 1bn tons a year, or 20mn barrels per day, by 2025 from 17.5mn barrels at the end of this year, according to China National Petroleum Corp\u2019s Economics & Technology Research Institute.
\nIndia is also boosting its processing capability by more than half to 8mn barrels a day by 2025, including a new 1.2mn barrels per day mega project. Middle Eastern producers are adding to the spree, building new units with at least two projects totalling more than a million barrels a day that are set to start operations next year.
\nOne of the key drivers of new projects is growing demand for the petrochemicals used to make plastics. More than half of the refining capacity that comes on stream from 2019 to 2027 will be added in Asia and 70% to 80% of this will be plastics-focused, according to industry consultant Wood Mackenzie.
\nThe popularity of integrated refineries in Asia is being driven by the region\u2019s relatively fast economic growth rates and the fact that it\u2019s still a net importer of feedstocks like naphtha, ethylene and propylene as well as liquefied petroleum gas, used to make various types of plastic. The US is a major supplier of naphtha and LPG to Asia.
\nThese new massive and integrated plants make life tougher for their smaller rivals, who lack their scale, flexibility to switch between fuels and ability to process dirtier, cheaper crudes.
\nThe refineries being closed tend to be relatively small, not very sophisticated and typically built in the 1960s, according to Alan Gelder, vice president of refining and oil markets at Wood Mackenzie. He sees excess capacity of around 3mn barrels a day. \u201cFor them to survive, they will need to export more products as their regional demand falls, but unfortunately they\u2019re not very competitive, which means they\u2019re likely to close.\u201d
\nGlobal oil consumption is on track to slump by an unprecedented 8.8mn barrels a day this year, averaging 91.3mn a day, according to the IEA, which expects less than two-thirds of this lost demand to recover next year.
\nSome refineries were set to shutter even before the pandemic hit, as a global crude distillation capacity of about 102mn barrels a day far outweighed the 84mn barrels of refined products demand in 2019, according to the IEA. The demand destruction due to Covid-19 pushed several refineries over the brink.
\n\u201cWhat was expected to be a long, slow adjustment has become an abrupt shock,\u201d said Rob Smith, director at IHS Markit.
\nAdding to the pain of refiners in the US are regulations pushing for biofuels. That encouraged some refiners to repurpose their plants for producing biofuels.
\nEven China may be getting ahead of itself. Capacity additions are outpacing its demand growth. An oil products oversupply in the country may reach 1.4mn barrels a day in 2025, according to CNPC. Even as new refineries are built, China\u2019s demand growth may peak by 2025 and then slow as the country begins its long transition toward carbon neutrality.<\/p>\n","protected":false},"excerpt":{"rendered":"

Bloomberg\/Beijing Earlier this month, Royal Dutch Shell pulled the plug on its Convent refinery in Louisiana. Unlike many oil refineries shut in recent years, Convent was far from obsolete: It\u2019s fairly big…<\/p>\n","protected":false},"author":1,"featured_media":5216,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15,22],"tags":[],"class_list":["post-5215","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","category-oil-gas"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/5215","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5215"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/5215\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/5216"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5215"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5215"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5215"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}