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China's Refiners Are An Existential Threat To Regional Competitors

China’s build-up of oil refining capacity is threatening the viability of other Asian refiners as the country is about to become the world’s largest refiner this year amid still depressed demand for fuels.

Bloomberg reports that the refining capacity of the country has increased threefold over the last 20 years and is on track to exceed the refining capacity of the United States this year as more new refineries come online.

China had 1.4 million bpd in new refining capacity under construction as of November last year. This amount, distributed among four refinery projects, will add to the more than 1 million bpd in new capacity that has already been added since 2019. 

Despite worries that this capacity will end up unused, especially with oil demand likely to stop growing in the observable future, China recently gave the go-ahead to yet another refining project: the Yulong refinery and petrochemicals complex in Shandong, the center of China’s independent refining industry.

With a capacity of 400,000 bpd, the Yulong facility will cost some $20 billion.

This year will see the addition of another two projects: one, the property of CNPC, and the other of the Shengdong Group. The two projects will boost China’s total capacity by another 36 million tons of crude—more than 700,000 bpd based on a conversion factor of 7.33 barrels in a ton of crude.

Besides the concern that much of this capacity may turn out to be excessive, there is also a real danger that China’s increased oil product export capacity is stifling regional competition, the Bloomberg report notes. South Korean, Taiwanese, and Singaporean facilities are already struggling because of the pandemic-related demand depression, and more fuels and other oil derivatives coming from China are not helping. Some refineries in Australia and the Philippines are outright shutting down as they become unable to compete.

By Charles Kennedy for Oilprice.com

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  • Mamdouh Salameh on March 31 2021 said:
    China is the driver of both the global economy and also the global oil demand. Major landmarks that chronicle China’s ascent to this dominant position in the global oil industry are:

    1- In 1993 China became a net crude oil importer for the first time in its history with oil imports growing from 20,000 barrels a day (b/d) then to an average of 11.76 million barrels a day (mbd) in 2020.
    2- In 2013 China overtook the United States to become the world’s largest importer of crude oil.
    3- In 2018 China’s GDP at $21.79 trillion based on purchasing power parity (PPP) used by both the IMF and the World Bank co compare the GDP’s of countries overtook the United States’ at $20.58 trillion.
    4- Also on the 26th of 26 March 2018 China launched its yuan-denominated crude oil futures in Shanghai thus challenging the petrodollar for dominance in the global oil market.
    5- China’s refining capacity is set to overtake the United States’ 16.581 mbd by the end of 2021 according to Bloomberg.

    Against such achievements, it is fully understandable why regional competitors feel threatened by China’s surge. If they can't match China's efficiency and cost-effectiveness, then they should accept China's dominance. In the global markets, survival is for the fittest.

    Take the case of Australia for instance. It is closing two of its four refineries and complaining about its rising imports of Chinese refined products.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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