Hengli Petrochemical starts operations; a new landscape for liquefied gas supply in the Northeast is emerging

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Dalian Hengli Petrochemical’s 20 million tons per year integrated refining and chemical processing project has attracted considerable attention in the past two years as a pioneer benefiting from the policies aimed at opening up the refining and chemical sector. After the Dalian People’s **News Office held a press conference in April 2018 to announce the progress of the major projects in the Dalian Hengli Petrochemical Industrial Park, it became a topic of continuous interest among industry professionals. It is understood that on December 15, the integrated refining and chemical processing project of Hengli Petrochemical was successfully put into operation. This project represents the first major refining and chemical processing project to be opened up to private enterprises in the oil refining industry; it is also the largest such project to have been approved to date. Its commissioning will have a profound impact on China’s oil refining industry as well as on the domestic liquefied gas market, particularly in the Northeast region. In recent years, the supply landscape of the liquefied gas market in our country has undergone significant changes. Domestic deep processing has developed rapidly, with liquefied gas resources being utilized in increasingly specialized ways; even the liquefied gas produced through such deep processing is gradually being used as an industrial raw material. Resources in various regions tend to be consumed locally, resulting in a gradual decrease in exports. Take the Northeast region as an example: this year, various alkylation plants run by state-owned enterprises began operations there. From Daqing Petrochemical to Daqing Refining & Chemical, as well as Harbin Refining and Jilin Petrochemical, the production capacity of these alkylation plants that came online in 2018 alone reached 1.08 million tons per year. Previously, there was an ample supply of C4 compounds; in fact, more than half of them could be sent to Shandong Province, where deep processing is concentrated. However, now with increased domestic demand and reduced exports, these resources have become scarce. Once in operation, Dalian Hengli Petrochemical will have a liquefied gas production capacity of 650,000 tons per year, or around 1,800 tons per day. It is also understood that Hengli Petrochemical (Dalian) Refining & Chemical Co., Ltd. has signed strategic supply and cooperation agreements as well as framework agreements with companies affiliated to China National Petroleum Corporation, such as CNPC Northeast Sales Company, CNPC International Co., Ltd., CNPC Lubricants Company, CNPC Fuel Oil Co., Ltd., as well as companies under Sinochem Group, including Sinochem Petroleum Co., Ltd. Following the project’s commissioning, comprehensive and in-depth cooperation will be established in terms of raw material procurement, the sales of refined products such as gasoline, diesel, and aviation kerosene, as well as other chemical products. Once the plant is operating stably, the sale of liquefied gas may be handled uniformly by Kunlun Company, which could help alleviate the supply shortages in the Northeast region. In recent years, the supply in the Northeast region has remained low. On one hand, this is due to the presence of two large ethylene production facilities in the region: the Daqing Petrochemical plant with an annual capacity of 600,000 tons of ethylene, and the Fushun Petrochemical plant with an annual capacity of 800,000 tons. Both facilities use some of the propane and C4 compounds available in the region as raw materials, which results in a significant supply gap in the area ； In addition, deep processing has developed rapidly, increasing the rate of resource utilization; in the Northeast region, there was even a period when it became difficult to procure such resources. At present, there are very few manufacturers in the Heilongjiang and Jilin provinces in the northeast that are able to supply goods externally. As a result, some businesses are forced to seek supplies at high prices from other regions, with Liaoning being the preferred choice followed by Shandong. The operation of Dalian Hengli Petrochemical will help to fill the supply gap in this area. It is worth noting, however, that the proportion of supply from the Liaoning region will increase further, while the Heilongjiang and Jilin regions will remain without any resources available for extraction; therefore, sourcing supplies from other areas will become the norm. The Hengli Petrochemical Industrial Park is located in the Changxing Island Economic Zone, which is a group of islands with distinct characteristics situated on the north side of Dalian, on the east coast of the Bohai Sea. The total planned area of the region is 598 square kilometers, with a well-developed transportation network. In June 2005, the Liaoning Provincial Party Committee decided to develop Changxing Island. In July 2009, as part of the elevation of the Liaoning Coastal Economic Belt to a **strategic initiative, it was designated as a key area within the \"Five Points and One Line\" framework. In April 2010, it was upgraded to a **-level development zone. In June 2010, provincial comprehensive reform pilot zones were established. In July 2011, the State Council approved the opening of the port to the outside world. In September 2014, the State Council approved the inclusion of the Changxing Island (Xizhong Island) Petrochemical Industry Base within the **petrochemical industry development plan, designating it as one of the seven key petrochemical industry bases that receive priority support. In the future, Hengli Group, using ethylene as a basic chemical raw material, also plans to establish a fine chemicals industrial park.