Outlook for China’s refining sector consolidation
Several Chinese provinces have taken measures to consolidate their refinery sectors by building large scale modern refineries such as Zhejiang Petroleum & Chemical Co Ltd (Zhejiang Province), Yulong Petrochemicals (Shandong Province) Hengli Petrochemical (Dalian) Refinery Co. (Liaoning Province), and Shenghong Refining & Chemical Co. Ltd. (Jiangsu Province) in order to increase the international competitiveness and buying power in oil refining, reduce overcapacity and improve refiner margins. In this study, we focus on the state of consolidation and liberalisation in the Chinese crude oil refining sector, analysing the progress made to date in particular in Shandong Province, while simultaneously considering Xi Jinping’s climate pledge. We discuss (i) planned quantity, type of output, timing and likelihood of completion of refining additions, (ii) the expected balance between private vs state owned refiners, and (iii) analyse policy documents on crude trading and domestic product pricing mechanism to understand the expected impact on product output and margins of state-owned versus independent refiners. This will ultimately shed light on the speed of the ongoing consolidation in China and provide insights how Chinese products will compare in terms of competitiveness to existing and planned Asian refiners.