Optimization and development trends of China’s petrochemical industry

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1. The current status of China’s petrochemical industry and its main problems: After years of rapid development, the economic scale of China’s petrochemical industry ranks among the highest in the world. Since 2010, China has become the world’s largest producer of chemicals and the second-largest producer of petrochemical products. In 2016, China’s refining capacity was approximately 7.94×10^8 tons per year. The total crude oil processing volume for the year reached 5.41×10^8 tons. However, the utilization rate of refining capacity remained below 70%. The output of refined oil products amounted to 3.48×10^8 tons, while domestic consumption stood at 3.15×10^8 tons. Net exports further increased to 3356×10^4 tons. The consumption ratio of diesel to gasoline dropped further to 1.37. There is a severe oversupply of diesel; as a result, exports of refined oil products—particularly diesel—are expected to become a regular and large-scale phenomenon. Thanks to the construction and commissioning of a large number of coal-to-olefins (CTO), methanol-to-olefins (MTO), and propane dehydrogenation (PDH) plants, the capacity for olefins, especially propylene, has grown rapidly. In 2016, the production capacities for ethylene and propylene were 2313×104 tons per year and 3396×104 tons per year respectively; the rates of raw material diversification were 21.7% and 38.4% respectively. The actual production volumes were 2126×104 tons and 2500×104 tons respectively, with the equivalent self-sufficiency rates rising to 53% and 77% respectively. Currently, there is overcapacity for most petrochemical products in China; however, the country still relies heavily on imports for certain organic raw materials such as p-xylene, ethylene glycol, and styrene. In high-end sectors as well as in diversified and customized fields where proximity to the market is essential for providing technical services, domestic supply remains severely inadequate. In recent years, Middle Eastern petrochemical products, leveraging their price advantages, have begun to flood the Chinese market, further intensifying competition in the domestic market. 1.1. Oil refining 1.1.1. Significant increase in production capacity, with structural overcapacity emerging gradually. In recent years, China’s oil refining industry has developed at a rapid pace. In 2010, China’s crude oil processing capacity was 5.48×108 tons per year, with a processing volume of 4.23×108 tons. The output of the three main types of refined oil was 2.53×108 tons, while the apparent consumption was 2.45×108 tons. In 2016, China’s primary crude oil processing capacity was 7.94×10^4 tons per year. To qualify for importing crude oil, independent refineries phased out outdated production capacity amounting to 2933×10^4 tons per year, thereby optimizing the overall capacity structure. In 2016, the crude oil processing volume was 5.41×108 tons, and the average operating rate for fuel-type enterprises and fuel-chemical type (refining and chemical integration) enterprises was 71.3%, which is significantly lower than the global average for oil refining (Table-1). In 2016, the net exports of refined oil reached 33.56 million tons. The export of refined oil (especially diesel) is expected to become a regular and large-scale phenomenon. Table 1: Operation status of China’s refining industry since 2010 (compiled by CPCIA)
Item | 2010 | 2016 | Average growth rate (2010–2016, %)
---|---|---|---
Primary processing capacity (108t/a) | 5.4 | 8.7 | 6.4
Crude oil processed (108t) | 4.2 | 5.4 | 4.2
Average operating rate (%) | 77.2 | 68.1 | —
Finished oil production (108t) | 2.5 | 3.48 | 5.5
Apparent consumption of finished oil (108t) | 2.45 | 3.15 | 4.3
While there is an overall surplus in primary crude oil processing capacity, there is also a problem of polarization in refining capacity. First, advanced production capacity remains insufficient. The results of the 2012 national survey on refining capacity showed that there were only 13 refineries, including Sinopec Guangzhou Branch and Sinopec Zhenhai Refining & Chemical Co., Ltd., whose energy consumption per unit of energy output was 8.5 kg of standard oil per ton of product or less. The total annual processing capacity for crude oil in these refineries was 14950×10^4 tons, accounting for 18.8% of the country’s total refining capacity. Secondly, there is a large amount of outdated production capacity with small scale and low technical standards, which is unable to meet the requirements for the intensive and large-scale development of the refining industry. According to statistics from the China Petroleum and Chemical Industry Federation (CPCIA), as of the end of 2016, there were 68 refineries with a capacity of 200×104 tons per year or less; their total capacity was 4781×104 tons per year, with an average capacity of only 70×104 tons per year. Even among the larger refineries, there were some smaller units that were outdated. Third, the level of integration in refining and chemical processing needs further improvement. Currently, among China’s 24 refineries with a processing capacity of 10 million tons each, only 17 have achieved integration of refining and chemical production. The primary crude oil processing capacity of these integrated enterprises is 23,960×10^4 tons per year, accounting for 30.2% of the country’s total processing capacity. 1.1.2. Divergent demand for refined oils and significant pressure to adjust the product mix. In recent years, structural adjustments in the industry have led to substantial changes in the consumption pattern of refined oils. This is evident in the sharp decline in the ratio of diesel to gasoline consumption, which dropped from 2.18 in 2010 to 1.50 in 2015, and further fell to 1.37 in 2016. In the future, the growth of diesel consumption will be **slower than that of gasoline, and the divergence in demand for refined oils will become more pronounced. It is expected that by 2020, the ratio of diesel to gasoline consumption will drop significantly below 1.1, while the ratio of diesel to gasoline production will fall to around 1.18. As a result, there will be an increased surplus of diesel resources, while gasoline supply will reach a tight balance. This has led to new requirements regarding the structure of refining products and the adjustment of plant configurations; the task of reducing the ratio of diesel to gasoline production is challenging (Table-2). Table 2: Growth and forecasts of refined oil consumption in China
Refined oil demand: 2010, 2016, 2020; Average annual growth rate from 2010–2016 (%), Average annual growth rate from 2016–2020 (%)
Gasoline (10,000 tons): 71,581, 198,315, 300,080; 8.97, 6.3
Kerosene (10,000 tons): 17,563, 026, 409, 9.49, 7.56
Diesel (10,000 tons): 156,001, 164,691, 650,000; 0.91, 10.05
Total refined oil (10,000 tons): 245,153, 147,835, 850, 4.25, 3.3
Ratio of diesel to gasoline: 2.18, 1.37, 1.08 ——
Note: Data is taken from the import/export section of the “China Petroleum and Chemical Economic Data Bulletin”, Issue No. 1, 2017. 1.1.3. The situation of overcapacity in oil refining will remain severe in the future. In 2016, the domestic demand for refined petroleum products was 3.15×108 tons. Based on the average yield of 62% in China’s oil refining industry over recent years and a reasonable operating rate of 80%, the appropriate capacity for oil refining should be 6.35×108 tons per year. The current processing capacity of crude oil by fuel-oriented and fuel-chemical integrated enterprises is 7.59×108 tons per year, resulting in an overcapacity of 1.24×108 tons per year. Affected by factors such as the slowdown in China’s economic growth, the steady progress of structural adjustment, and the profound transformation of traditional industries, the growth rate of China’s demand for refined oil products is expected to decline to below 3% during the 13th Five-Year Plan period. It is projected that the demand for refined oil products will reach 3.65×10^8 tons in 2020. Based on the current status of projects under construction, planned, or in the planning stage at various refineries, and taking into account the phasing out of outdated facilities, it is estimated that China’s primary processing capacity for crude oil will reach around 8.8×108 tons per year by 2020. Based on a 62% yield of refined oil products and an 80% operating rate, the reasonably allocated refining capacity in 2020 is calculated to be 7.36×10^8 tons per year. Even then, there will still be an excess capacity of around 1.4×10^8 tons per year; thus, the problem of overcapacity remains severe (Table 3). Table 3: Major new oil refining capacities during the 13th Five-Year Plan period (compiled by CPCIA)
Serial Number | Name | Capacity (10^4 t/a) | Increase (10^4 t/a)
1 | CNOOC Refining & Chemical Co., Ltd., Huizhou Refining Branch | 1,200 → 2,200 | 1,000
2 | Sinopec North China Petrochemical Company | 500 → 1,000 | 500
3 | Sinopec Yunnan Petrochemical Co., Ltd. | 1,300 | 1,300
4 | Sinopec Zhongke Refining & Chemical Company | 1,000 | 1,000
5 | Sinochem Quanzhou Petrochemical Co., Ltd. | 1,200 → 1,500 | 300
6 | Zhejiang Petrochemical Co., Ltd. | 2,000 | 2,000
7 | Hengli Petrochemical (Dalian) Refining & Chemical Co., Ltd. | 2,000 | 2,000
8 | Shenghong Petrochemical (Lianyungang) Co., Ltd. | 1,600 | 1,600
9 | Other projects | — | 2,500
Total new capacity during the 13th Five-Year Plan period: —12,200

1.1.4. There is still considerable pressure to improve the quality of refined oils. In order to reduce emissions from motor vehicles, improve air quality across the country, effectively address smog problems, and promote green and sustainable development, efforts to upgrade the quality of refined oils in China continue to accelerate. During the 13th Five-Year Plan period, starting in 2017, both gasoline and diesel for vehicles met the National V standards, and by 2019 they had reached the National VIA standard. By the end of 2016, China’s production capacity for National V gasoline and diesel had increased to 11477×104 tons per year and 15303×104 tons per year, respectively ； At present, only a few companies such as Sinopec Yanshan Petrochemical can produce gasoline and diesel that meet National VI standards; the production capacity for National VIA gasoline and diesel is 355×104 tons per year and 280×104 tons per year, respectively. Therefore, to meet the requirements for upgrading the quality of refined oil, China’s refining industry needs to further improve its facilities and enhance its processing capabilities. 1.1.5. Intensifying domestic and international competition makes the market prospects more complex. Overall, domestic refining capacity exceeds demand, leading to fierce competition within the industry; in recent years, the utilization rate of refineries has shown a clear downward trend. From 2010 to 2016, the average annual growth rate of crude oil processing volume was only 4.2%; the operating rate of refineries across the country dropped from 77.2% in 2010 to 71.3% in 2016, while the average operating rate of local refineries was even less than 40%. Alternative fuels are developing rapidly, squeezing the market space for refined oil products. Alternative fuels in China are showing a trend toward diversification, gradually forming a pattern in which natural gas plays a key role, alongside electric vehicles, methanol, biofuels, and coal-to-oil technologies, all of which develop together. It is expected that during the 13th Five-Year Plan period, electric vehicles will develop rapidly, and the share of alternative fuels in total refined oil consumption will rise from the current level of nearly 6.5% to around 10.5%. The focus of global refining capacity is shifting eastward, intensifying competition for China’s refined oil exports. In recent years, multinational oil companies have accelerated the development of large-scale refining projects in oil and gas-producing countries as well as in emerging markets. Some oil-rich countries in the Middle East and India are vigorously developing export-oriented refining industries, while some traditional importers of refined oil products in China’s vicinity are also working to develop their own refining sectors. The significant increase in China’s exports of refined oil products will squeeze the market shares of traditional exporters of such products, leading to increasingly fierce competition in the refined oil market in Northeast Asia in the future. At the same time, domestic companies will face greater pressure on cost prices. 1.2. Olefins 1.2.1. Production capacity continues to grow steadily, while the diversification of raw materials accelerates. Since the start of the 12th Five-Year Plan period, significant changes have taken place in the economic and industrial landscapes both domestically and internationally, which has led to a shift in the competitive landscape of China’s olefin industry. The industry has entered a phase of structural adjustment, characterized by a shift in its development focus from merely pursuing scale expansion to enhancing overall competitiveness. The growth rates of production and consumption have slowed down significantly, with the adjustment of raw material structures and the upgrading of product structures becoming the main trends. In 2016, China’s ethylene production capacity increased to 2304×104 tons per year; all of the additional capacity came from coal-based and methanol-based olefin production. The total production volume reached 2171×104 tons, and the equivalent self-sufficiency rate rose to 52.5% ； In 2016, China’s propylene production capacity increased to 3339×104 tons, while the output reached 2542×104 tons; the equivalent self-sufficiency rate rose to 75.2% (Table-4). Table 4: Supply and demand of olefins in China in 2010 and 2016 (compiled based on data from CPCIA)
Product | 2010 | 2016
---|---|---
| Equivalent consumption (10,000 tons) | Equivalent self-sufficiency rate (%) | Equivalent consumption (10,000 tons) | Equivalent self-sufficiency rate (%)
Ethylene | 2960 | 48.3 | 1355 | 52.5
Propylene | 2150 | 62.8 | 3807 | 75.2

China has taken the lead globally in the industrialization of coal-to-olefins technology. Under conditions of high oil prices, this technology offers significant cost advantages compared to naphtha steam cracking processes. During the 12th Five-Year Plan period, it saw rapid development. By the end of 2016, a total of 11 coal-to-olefins plants, 16 methanol-to-olefins plants, and 11 propane dehydrogenation plants (including 2 mixed dehydrogenation plants) had been put into commercial operation in China. Collectively, these facilities have a total olefins production capacity of 1759×10,000 tons per year, accounting for 21.7% of China’s total ethylene production capacity and 38.4% of its propylene production capacity. However, since the second half of 2014, international oil prices have plummeted, significantly reducing the cost advantages of coal-to-olefins and methanol-to-olefins processes compared to the traditional naphtha steam cracking route. It is expected that during the 13th Five-Year Plan period, international oil prices will remain mainly in the range of $45 to $70 per barrel. Coal-based olefins and methanol-based olefins still have opportunities for development, but their competitive advantages are no longer significant; therefore, scientific planning, rational layout, and moderate development are necessary. 1.2.2. The growth rate of consumption and demand is gradually slowing down Since 2010, due to the slowdown in economic growth, downstream demand has remained weak. As a result, the growth rates of domestic demand for ethylene and propylene have significantly decelerated. In 2016, the apparent consumption of ethylene and propylene in China was approximately 23.35 million tons and 28.32 million tons, respectively. Taking into account the net imports of downstream products, the equivalent consumption of ethylene and propylene (domestic production + imports – exports + the converted value of net imports of downstream products) was roughly 41.35 million tons and 33.80 million tons, respectively. Between 2010 and 2016, the average annual growth rates of equivalent consumption of ethylene and propylene in China stood at 5.7% and 7.8%, respectively. It is expected that China’s economic growth rate will continue to decline in the coming years, leading to a slowdown in the demand for downstream products derived from ethylene and propylene. Based on forecasts for the development of industries downstream from ethylene and propylene, it is estimated that China’s demand for ethylene equivalent will rise to around 4800×104 tons by 2020, with an average annual growth rate of approximately 3.8% during the period 2016–2020 ； By 2020, the domestic demand for propylene equivalent is expected to rise to around 3900×104 tons, with an average annual growth rate of approximately 3.6% between 2016 and 2020 (Table-5). Table 5: Forecast of Olefin Market Demand during the 13th Five-Year Plan Period (compiled by CPCIA)
Item | 2010 | 2016 | 2020 | Average growth rate (2010–2016, %) | Average growth rate (2016–2020, %)
Ethylene equivalent consumption (10^4 tons) | 2,960 | 4,135 | 4,800 | 5.7 | 3.8
Ethylene equivalent self-sufficiency rate (%) | 48.3 | 52.5 | 60 | ——
Propylene equivalent consumption (10^4 tons) | 2,150 | 3,380 | 3,900 | 7.8 | 3.6
Propylene equivalent self-sufficiency rate (%) | 62.8 | 75.2 | 90.3 | ——
1.2.3. Competition in the olefin industry is intensifying, with an increasingly complex competitive landscape. China is one of the most important markets for petrochemical products in the world. Although domestic demand for olefin equivalents will continue to grow, on a global scale, competition is more fierce and the competitive environment is more complex. China represents a key market that various producers are competing fiercely for. In the future, China’s olefin industry will first face competition from low-cost products from the Middle East and North America, as well as competition from high-end products from Europe, the United States, Japan, South Korea, and other countries (Table 6). Within our industry, due to the rapid development of olefin production from diverse raw materials, competition among different raw material-based olefin production methods has become even more pronounced. Table 6: Comparison of ethylene production costs in China, the Middle East, and the United States **/ Region Feedstock price level Ethylene cost (RMB/t) Equivalent in USD (USD/t) Percentage (%) China Methanol-to-ethylene Methanol: 2,700 RMB/t; 6,440 USD/t; 1,040%; 100% Naphtha steam cracking Crude oil: 60 USD/bbl; 5,140 USD/t; 830%; 79.8% Coal-to-ethylene Coal: 300 RMB/t; 4,670 USD/t; 755%; 72.6% Middle East Ethane cracking Ethane: 2 USD/mmbtu; —; 350 USD/t; 33.7%; 60% Ethane cracking Ethane: 2 USD/mmbtu, crude oil: 60 USD/bbl; —; 5,184 USD/t; 98.2% United States Ethane cracking Ethane: 0.5 USD/gal; —; 600 USD/t; 57.7%; 75% Ethane cracking Ethane: 0.5 USD/gal, crude oil: 60 USD/bbl; 6,526 USD/t; 62.7% Note: Coal (heat value: 5,500 kcal/kg) and methanol prices include taxes, while the ethylene cost does not. 1 gal of ethane equals 1.34 kg ； The ratio is based on methanol-to-olefins production as a benchmark, and it represents the ratio of the costs of other routes to the cost of methanol-to-olefins production. The data in the table were calculated and compiled by the Petroleum and Chemical Industry Planning Institute (NPCPI). Currently, the price of ethane used as a feedstock in ethylene production facilities in the Middle East is around 2 dollars per mmbtu, which is equivalent to approximately 100 dollars per ton. Based on this, the production cost of ethylene is around 350 dollars per ton, representing 34% to 46% of the production costs in China. Even assuming a ratio of 60% ethane + 40% naphtha, the production cost of ethylene is 517 USD per ton, which is still more than 30% lower than that in China, indicating a significant cost advantage. In recent years, Middle Eastern petrochemical products have begun to flood the Chinese market, thanks to their price advantages. In 2015 and 2016, over 50% of China’s imports of polyethylene and ethylene glycol came from the Middle East. It is expected that before 2020, our country will face continuous pressure from the import of low-cost bulk petrochemical products from the Middle East. The impact of the rapid industrial development in the Middle East on the domestic market has gradually become evident. 1.2.4. There is a structural shortage in the domestic supply of petrochemical products. China has a relatively high degree of dependence on imports for certain basic petrochemical products (especially those derived from petroleum). In 2016, the self-sufficiency rates for ethylene (equivalent), p-xylene, polyethylene, ethylene glycol, and styrene were 52.5%, 43%, 62.9%, 34.6%, and 60% respectively. The reasons are as follows: first, there is a shortage of oil in our country, and the supply of naphtha used for producing ethylene and aromatics is limited ； Second, compared to ethylene produced via the cheap ethane-based route in the Middle East and North America, the naphtha-based route is more costly and less competitive ； Thirdly, affected by the overall downturn in the petrochemical products market recently as well as public opinion pressure, the construction progress of large-scale petrochemical projects has slowed down (Table-7). Table 7: Supply and demand situation of organic raw materials in China during the 12th Five-Year Plan period (compiled based on NPCPI data)
Serial Number | Product | Consumption (10^4 tons) | Self-sufficiency rate (%) | Consumption (10^4 tons) | Self-sufficiency rate (%)
1 | Ethylene glycol | 918 | 281 | 308 | 33
2 | Styrene | 702 | 489 | 346 | 0
3 | Ethylene oxide | 99 | 100 | 225 | 100
4 | Acrylic acid | 102 | 100 | 173 | 101
5 | Propylene oxide | 156 | 772 | 241 | 89
6 | Acrylonitrile | 153 | 711 | 96 | 80
7 | n-Butanol | 114 | 445 | 152 | 86
8 | Isooctanol | 110 | 581 | 141 | 81
9 | Phenol | 127 | 541 | 189 | 92
10 | Propane | 117 | 361 | 151 | 71
11 | Purified terephthalic acid | 207 | 468 | 307 | 199
12 | MDI | 117 | 779 | 176 | 97
13 | Caprolactam | 112 | 442 | 209 | 89
14 | Phthalic anhydride | 140 | 891 | 159 | 96
15 | Methanol | 227 | 077 | 454 | 888
16 | Glacial acetic acid | 368 | 104 | 553 | 106
17 | Vinyl acetate | 162 | 851 | 164 | 97
The domestic self-sufficiency rate for high-tech chemical materials and advanced specialty chemicals is relatively low; high-end products such as engineering plastics, advanced polyolefin plastics, special rubbers, and electronic chemicals still require substantial imports. For example, in recent years, the domestic deficit for polycarbonate has remained above 100×104 tons ； Special high-end materials such as polyimides, polyarylates, and perfluoroelastomers, which occupy the top of the \"new materials pyramid,\" have long been unavailable for domestic production. After achieving breakthroughs in terms of technology acquisition, the production capacity of certain new chemical materials has increased rapidly. However, since the acquired technologies are at a relatively low international level, the products produced are of poor quality and there are few varieties and grades available; thus, they can only meet the demands of the low-end market. In other cases, the technologies remain immature, resulting in unstable operations and poor market competitiveness. Consequently, both the domestic self-sufficiency rate and the utilization rate of production facilities remain low. Notable examples include carbon fiber, polyoxymethylene, and polytetrafluoroethylene. 1.3. Para-xylene
1.3.1. The industrial scale continues to grow, with diversified investment entities
In recent years, the total production capacity and average scale of para-xylene (PX) in China have been increasing year by year. In 2016, China had 17 PX production enterprises with 23 units in total, resulting in a combined PX production capacity of 1368.7×104 tons per year. The average production capacity per enterprise was 80.5×104 tons per year, while the average capacity per unit was 59.5×104 tons per year – figures all above the world average. In recent years, there has been a clear trend toward larger-scale PX plants in China; the capacity of newly built PX plants is all above 60×104 tons per year, with the largest single plant capacity reaching 160×104 tons per year. In recent years, due to the entry of enterprises other than the two major groups, China National Petroleum Corporation and Sinopec, particularly some foreign-funded and private companies, the investment entities in this industry have become more diversified, leading to a decline in industry concentration. Between 2000 and 2016, the number of domestic PX producers increased from 7 to 17, while the share of production capacity held by the top 4 companies dropped from 85.8% to 30.7% ； Currently, the PX production capacity of companies that are not part of these two major groups accounts for 47.1% of the total capacity, representing a significant increase compared to the year 2000 (Table-8). Table 8: Production status of the p-xylene industry in China in recent years (compiled by CPCIA)
| Year | 2000 | 2010 | 2014 | 2016 |
| Number of enterprises | 7 | 13 | 16 | 17 |
| Production capacity (10^4 t/a) | 140 | 882 | 1203 | 1369 |
| Production volume (10^4 t/a) | 130 | 775 | 880 | 912 |
| Average production capacity per enterprise (10^4 t/a) | 206.79 | 75.28 | 80.5 | — |
| Average production volume per enterprise (10^4 t/a) | 18.65 | 9.65 | 55.9 | 9.5 |

1.3.2. There is a significant imbalance between market supply and demand, but this gap is expected to shrink considerably in the coming years. In 2015, China’s p-xylene production was 912×10^4 t, while the net import volume was 1152.9×10^4 t; the apparent consumption was around 2068×10^4 t, resulting in a self-sufficiency rate of only 44.3%. In 2016, China’s production of p-xylene was 956×104 tons, representing a 4.5% increase compared to the previous year. However, demand for downstream product purified terephthalic acid (PTA) grew even faster, resulting in an increasing supply-demand gap for p-xylene. In 2016, China’s net import volume of p-xylene reached 1230×104 tons, causing the self-sufficiency rate to drop further to 43.7%. In recent years, due to the rapid development of the domestic polyester industry and the release of large amounts of production capacity for polyethylene terephthalate (PET) and PTA, demand in the PX market has seen rapid growth. Between 2005 and 2016, the average annual growth rate of domestic PX consumption was as high as 18%, which is much higher than that of other major basic organic raw materials such as ethylene, propylene, and benzene ； During the same period, due to various factors such as raw material supply issues and frequent incidents related to PX projects, the growth in capacity and production was sluggish. As a result, the domestic supply-demand gap increased significantly, rising from 154.5×104 tons in 2005 to 1230×104 tons by 2016; the average annual growth rate during this period was as high as 20.5%. The domestic self-sufficiency rate declined from 59.1% in 2005 to 43.7% in 2016. As one of the few organic chemical products in the country that will face a significant shortage for a long time to come, PX encourages high enthusiasm among enterprises for investing in its production. Furthermore, as the entry barriers for the PX industry decrease, in the future any facility that has access to raw materials, is compatible with downstream industries, is located within one of the **seven major petrochemical industrial parks, and features advanced energy consumption standards will be able to be built as planned. As a result, the supply-demand gap for PX will shrink significantly. It is expected that China’s net imports of PX in 2020 will drop below 500×104 tons. 1.3.3. There is still significant room for optimization in the structure of raw materials, and the level of integration in refining and chemical processing needs to be improved. In recent years, with the continuous growth of domestic oil refining capacity, particularly through the implementation of a number of large-scale refining and chemical integration projects with capacities of tens of millions of tons, the structure of PX raw materials in China has seen notable improvements, but there is still much room for further optimization. In many large-scale domestic integrated oil refining and petrochemical projects, the relationships among the production of petroleum products, ethylene, and aromatics cannot be fully optimized. The scale of oil refining is relatively small compared to ethylene production; thus, refining capacity and secondary processing schemes fail to align adequately with downstream ethylene and aromatics production. This often leads to competition for raw materials between ethylene and aromatics producers. To ensure a stable supply of ethylene feedstock, there is frequently a shortage of aromatics feedstock domestically, which in turn affects the operating rate of PX plants ； Furthermore, since one of the main raw materials for PX production plants is the reformed oil produced by reforming units, which is also an important additive for high-octane gasoline, the demand for gasoline is increasing steadily due to the rapid development of the domestic automobile industry, thereby exacerbating the shortage of PX raw materials. Therefore, through the optimization of refining and chemical integration, it is necessary to appropriately expand the processing capacity of associated refineries, optimize the layout of facilities and adjust the processing processes accordingly. Based on market demands and the laws of value, the relationship between aromatic compounds, ethylene, and gasoline production should be flexibly managed in order to enhance competitiveness and achieve overall maximization of the interests of enterprises engaged in refining and chemical integration. At the same time, efforts are being made to expand the use of other raw materials such as condensate and methanol, and by combining them with new technologies like diesel hydrocracking, the issue of tight raw material supplies is being addressed gradually. 2. Suggestions for optimizing the structure of the petrochemical industry 2.1 Adhere to integrated and intensive development, optimize the layout by coordinating the development of refining capacity with the construction of olefin and PX plants. Where possible, rely on existing enterprises to build or expand ethylene and PX facilities without increasing or only minimally increasing refining capacity, thereby further enhancing the level of integration in the petrochemical sector and alleviating regional overcapacity issues in oil products. First, it is necessary to encourage existing enterprises with competitive advantages and development potential to carry out integrated refining and chemical processing upgrades, such as the Sinopec Jiujiang Petrochemical Aromatics Project, the Guangxi Petrochemical Aromatics Project, the Hainan Integrated Refining and Chemical Processing Expansion Project, the Quanzhou Petrochemical Integration Expansion Project, and the Zhenhai Integrated Refining and Chemical Processing Expansion Project. Secondly, it is necessary to support the intensification and integration of regional resources by adopting a cross-regional, cross-ownership, and enterprise-based approach to consolidate scattered chemical light oil and aromatic hydrocarbon resources. Large-scale ethylene and PX projects should be developed, such as the China Chemical (Shandong) million-ton ethylene project, the aromatic hydrocarbon project in the Dongying Port Economic Development Zone in Shandong, and the aromatic hydrocarbon project of Hebei Jiurui Chemical. 2.2. Optimizing the structure of olefin feedstocks to reduce growth in crude oil consumption and enhance cost competitiveness. The optimization of feedstock structures in China’s olefin industry focuses on several aspects: First, considering overall benefits, integrated refining and chemical companies in areas where there is an excess supply of refined products, especially diesel, can appropriately increase the proportion of light diesel in the feedstocks used in cracking units. In 2016, light diesel accounted for about 8% of the raw materials used in China’s pyrolysis units; if this proportion were increased to 15%, it would enable the utilization of 900×104 tons per year of refining capacity. Second, it is to thoroughly explore the potential for integrated utilization of resources in the traditional naphtha steam cracking route for ethylene production. By optimizing the integrated refining and petrochemical plan, reasonably allocating the crude oil processing capacity and processing strategies for such projects, improving the overall material balance of the plant, and giving full consideration to the coordinated use of resources from oil fields, refineries, and other sources in the region, efforts are made to reduce the proportion of naphtha as a raw material for ethylene production, while increasing the use of lighter-grade raw materials and low-quality materials such as light hydrocarbons from refineries, oil field hydrocarbons, condensate, and various types of recovered gases. Third, we should vigorously promote new technologies such as the recovery of ethylene from catalytic dry gas and the recovery of styrene from pyrolysis gasoline, so as to enhance the utilization value of existing resources and achieve their optimal use under conditions of limited resources. Fourth, we will proactively seek to secure overseas resources of light-weight raw materials, including light hydrocarbons and condensate in the Middle East, as well as shale gas in North America and its associated ethane, propane, etc. We will explore the feasibility of utilizing these resources to develop processes for producing ethylene via ethane or light hydrocarbon cracking, olefins from methanol, or propane dehydrogenation, either domestically or overseas. 2.3. Strengthen technological innovation and increase efforts in the conversion of diesel through catalysis. At present, the national catalytic capacity is around 2.32×108 tons per year, with the production of catalyzed diesel amounting to approximately 3700×104 tons per year. This type of catalyzed diesel has a high sulfur content, a low cetane number, and a high level of polycyclic aromatic hydrocarbons, which constitute the main barriers to the upgrading of diesel. Vigorously develop and apply catalytic diesel conversion technologies, continuously improve their efficiency, reduce energy and hydrogen consumption, and convert catalytic diesel components into gasoline components and light aromatics. This not only helps to upgrade the quality of diesel but also reduces the diesel-to-gasoline ratio. 2.4. High-end development to address shortcomings in domestic consumption: The main direction for upgrading the product structure of China’s olefin industry in the future is differentiation and high-end development. Specifically, for traditional ethylene production plants that use naphtha for steam cracking, the approach involves taking advantage of the opportunities for differentiation arising from the use of lighter foreign ethylene feedstocks. It is also necessary to make full use of the advantages offered by steam cracking processes using liquid feedstocks, primarily naphtha, which enables a wider range of product types. The strategy involves developing C2, C3, C4 olefins and aromatics together, while also exploring the potential for value addition through further processing of by-products such as C4, C5, and C9 compounds. This approach aims to transform these by-products into advantages for the downstream industrial chain related to ethylene production, thereby enriching the product structure and increasing their added value. It also helps to enable differentiated competition with other production methods such as ethane cracking, MTO, and PDH. At the same time, in terms of the positioning of end products, efforts should be made to increase the proportion of chemical new materials and specialty chemicals with high technical content and high added value, in order to explore a path toward higher-end development. By diversifying, upgrading, and differentiating the product structure, it aims to compensate for cost disadvantages through increased product added value and engage in differentiated competition. 2.5. Accelerate the phasing out of outdated production capacity, address overcapacity issues, and drive industrial upgrading by establishing advanced, entry, and outdated standards regarding energy consumption, material usage, safety, environmental protection, and oil product quality in the refining industry, and by ensuring strict enforcement of these standards to facilitate the transformation and upgrading of the industry. For oil refining enterprises whose operating capacity falls short of the established standards, policies for phasing out and replacing such capacity should be put in place to allow the market to play a decisive role in resource allocation. In line with the \"Notice on Issues Related to the Management of Imported Crude Oil\" (Document No. Fa Gai Yun Xing 253), a number of oil refining units with poor product quality, high energy consumption, inefficient use of resources, significant safety hazards, and failure to meet environmental standards should be phased out, thereby creating space for the development of more advanced production capacities. In line with the \"new normal,\" and in order to optimize project construction plans and schedules, some oil refining companies have taken proactive measures by canceling certain renovation and expansion projects, delaying the completion and commissioning of other projects, and resuming work on them at an appropriate time once the conditions are right. Enterprises are encouraged to gradually address overcapacity through capital operations, mergers and reorganizations, as well as closures and transformations. Based on the current applications submitted by independent refineries for permission to import crude oil, it is estimated that more than 3,000×104 tons per year of outdated refining capacity can be phased out during the 13th Five-Year Plan period. 2.6. Moderate expansion of refined oil exports: As domestic refining capacity continues to increase, there is a persistent surplus in production capacity. In the future, exports of refined oil will be an important means of maintaining balance in the domestic market. China’s exports of refined oil are likely to increase significantly, resulting in considerable export pressure. At the same time, as diesel consumption in our country is growing slowly while demand for gasoline remains strong, the ratio of diesel to gasoline consumption is declining. Therefore, while ensuring domestic gasoline supply, there is a more pronounced tendency toward a surplus of diesel, and it is expected that pressure to export diesel will increase. To this end, export restrictions on refined oil should be eased moderately; while ensuring domestic demand for such oils, the supply and demand balance should be adjusted through imports and exports, and domestic enterprises should be encouraged to actively explore international markets, particularly those in neighboring regions such as Indonesia, Malaysia, the Philippines, Vietnam, and Australia in the Asia-Pacific region.