Macro data on the development of local refineries in Shandong

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Recently, the latest statistical data released by the Shandong Petroleum and Chemical Industry Association show that all indicators related to Shandong’s petroleum and chemical industry are improving, with its competitive advantages continuing to be strengthened and expanded. Li Dekun, secretary-general of the Shandong Petroleum and Chemical Industry Association, said that this is a gratifying achievement resulting from the Shandong petrochemical industry’s efforts to strengthen structural adjustments and carry out supply-side reforms. Data shows that the crude oil processing volume in Shandong Province’s refining and chemical industry has increased significantly, with capacity utilization rates rising gradually. In 2017, the key local refining enterprises across the province (34 enterprises were under statistical monitoring; the same applies hereafter) processed a total of 98.241 million tons of crude oil and fuel oil, representing a year-on-year increase of 14.6%. Of this, 64.314 million tons of crude oil were processed, representing a year-on-year increase of 61.5% ； 33.926 million tons of processed fuel oil were produced, a 26% decrease year-on-year. The utilization rate of the primary processing capacity for raw materials reached 80%, an increase of 10.2 percentage points compared to the previous year. Among them, the 21 companies that are already using imported crude oil have largely reached full capacity operation. In addition, Shandong’s crude oil procurement volume increased significantly, the production of refined oil remained stable, while the output of chemical raw materials grew at a rapid pace. In 2017, the key local refining enterprises in Shandong Province purchased a total of 71.62 million tons of crude oil, representing a year-on-year increase of 62.3%. Of this, 55.83 million tons were imported crude oil, a year-on-year increase of 70.4% ； 15.79 million tons of domestic crude oil were purchased, a year-on-year increase of 38.9% ； The volume of fuel oil purchased declined significantly, with 35.54 million tons purchased throughout the year, a decrease of 18.4% compared to the previous year. Throughout the year, 14.22 million tons of gasoline and 28.11 million tons of diesel were produced, representing declines of 13.4% and 0.5% respectively ； Naphtha amounted to 4.321 million tons, propylene to 1.717 million tons, MTBE to 1.738 million tons, and liquefied gas to 5.619 million tons, showing increases of 16%, 24.9%, 32.3%, and 28.3% respectively. “The economic efficiency of Shandong’s refining and chemical industries continued to show rapid growth, achieving remarkable results. In 2017, the key local refining enterprises across the province generated main business revenue of 606.67 billion yuan, a year-on-year increase of 29.8% ； Revenue and taxes amounted to 41.98 billion yuan, while profits reached 15.64 billion yuan, representing increases of 40.7% and 25.6% respectively. Among them, the 21 enterprises that already use imported crude oil (with a production capacity of 79.1 million tons, accounting for 64.4% of the total in the province) generated main business revenues of 497.17 billion yuan, taxes and profits of 37.04 billion yuan, and profits of 13.21 billion yuan. These figures represent 82%, 88%, and 84% of those achieved by all local refining enterprises in the province respectively. The profit growth rate for these enterprises was 5.8 percentage points higher than that of the entire industry, highlighting the decisive role that access to imported crude oil plays in the operational performance of these enterprises. ”Li Dekun introduced. Li Dekun said that the operational performance of the refining and chemical industry in Shandong Province has improved significantly; the proportion of local contributions has risen rapidly, while the process of reporting crude oil production has progressed steadily, and the level of equipment used has continued to improve. In the first half of 2017 alone, 25 local refining companies passed the on-site inspections conducted by the National Development and Reform Commission and were granted quotas totaling 75.89 million tons. These 25 enterprises retained 30 sets of processing units, with a total production capacity of 90.8 million tons; the average annual processing capacity per unit increased from 2.055 million tons before the phase-out to 3.027 million tons. It is committed to phasing out 81 sets of outdated facilities with a production capacity of 63.27 million tons. Of these, 53 sets are located within the province, with a combined production capacity of 45.45 million tons – including 30 sets owned by enterprises with a capacity of 32.50 million tons, and 23 sets acquired from other companies within the province with a capacity of 12.95 million tons. There are 28 sets of outdated facilities outside the province, with a production capacity of 17.82 million tons. In addition, focusing on the improvement of refined oil quality and cleaner production, local refineries have actively adopted advanced technologies and enhanced their capabilities for independent research and development. They have achieved significant results in increasing the yield of light oils, improving the conversion efficiency of heavy oils, and upgrading oil quality. The oil products produced by these key refineries meet the National VI standards, providing essential support for supplying vehicle gasoline and diesel that comply with these standards to all 7 cities designated in the Shandong Province Implementation Rules – Jinan, Zibo, Jining, Dezhou, Liaocheng, Binzhou, and Heze – as well as to the cities of Tai’an and Laiwu. At the same time, local refining enterprises in Shandong are striving to develop deep processing, extend the chemical industry chain, and further improve the level of light-weighting and olefinization in this industry, thereby providing a raw material foundation for the expansion of the chemical industry chain. Faced with fierce external competition, local refineries in Shandong Province have formed alliances to gradually integrate the upstream and downstream industrial chains. Liu Cheng, the first chairman of the China (independent refiners) Petroleum Procurement Alliance, said that since its establishment, the alliance has strengthened internal communication and built mutual trust, while simultaneously exploring new markets and trying out new business opportunities. They established a weekly information report system and monthly meeting system for the procurement alliance, to help its members keep track of the trends in the international crude oil market as well as the development trends in the petrochemical industry, thereby enhancing communication and understanding among the members ； Organize training on international business to enhance the operational capabilities of member units in areas such as international trade, crude oil trading, pricing mechanisms, and shipping and warehousing ； Strengthen the connections between alliance members and major international oil companies and financial institutions, in order to enhance the international image and status of the purchasing alliance and independent refineries ； Make full use of the market, financial, and bargaining advantages held by Dongming Petrochemical’s subsidiaries, Singapore Pacific Business Holdings Limited and Hengfeng Petroleum Trading Co., Ltd., to provide member companies with services such as centralized bargaining, large-scale contract signing, financing, price locking, as well as transportation and warehousing. In 2017, the alliance added 20 new member companies; it purchased 15 million tons of imported crude oil, which helped to reduce costs related to procurement, transportation, and settlement. This approach enhanced the bargaining power of local refining companies, and initial results were achieved in standardizing the process of purchasing imported crude oil. In light of the slow progress in the construction of supporting facilities such as pipelines, Shandong Province has accelerated the development of related industries and stepped up efforts to address existing shortcomings. It has increased investment in projects such as port storage, long-distance pipelines, docks, and railway sidings in order to fill these gaps and ensure complementarity with its main petrochemical operations. Departments such as the Shandong Provincial Development and Reform Commission have formulated the \"Provincial Plan for the Construction of Oil and Gas Transportation Facilities (2016–2020)\). Under this plan, during the 13th Five-Year Plan period, efforts will be made to accelerate the development of an oil and gas transportation system that is centered around ports such as Qingdao Port, Rizhao Port, and Yantai Port, with ports like Weifang Port, Dongying Port, and Binzhou Port playing a supporting role. Additionally, nine inbound and three outbound crude oil pipelines, along with seven connecting lines, will be established to create a transportation network that serves the province itself and also covers the surrounding areas. It is understood that the relevant authorities are currently accelerating the project planning, approval processes, and construction progress for ports, terminals, oil pipelines, storage facilities, and logistics infrastructure. They are also speeding up the system testing, specialized inspections, and preparation work for putting the existing pipelines into operation, with the aim of establishing physical connections between ports, pipelines, and refining facilities as soon as possible. This will help reduce the operating costs and transportation safety risks for local refineries. At the same time, these authorities are encouraging and guiding local refineries to participate in the construction and investment in such projects, thereby enhancing their influence. In order to capture the refined oil sales market, expand their profit margins, and address the current lag in the development of their sales networks, local refining companies in Shandong are accelerating the construction of refined oil gas stations, thereby enhancing their influence in the refined oil sales sector in that region.