Thread Content
On October 26, the State Council issued the “Action Plan for Peaking Carbon Emissions Before 2030” (hereinafter referred to as the “Plan”). Unlike previous top-level plans, the “Plan” released this time is China’s first comprehensive policy formulated specifically for achieving carbon peak emissions. The Plan focuses on the two critical periods for achieving carbon peak, namely the 14th and 15th Five-Year Plans, and sets key objectives such as increasing the share of non-fossil energy consumption, improving energy efficiency, and reducing carbon dioxide emissions. Its emphasis is on implementing the \"Ten Actions for Achieving Carbon Peak\" across society as a whole. The achievement of any goal relies on a \"timeline\" and a \"roadmap\"; neither can be omitted. If China’s commitment of \"3060\" made to the world on September 22 last year established a \"timeline,\" then the plan introduced this time serves as a detailed \"roadmap\" for achieving the goal of carbon peak. As a major source of carbon emissions, how will the petrochemical industry develop after the introduction of this plan? Which areas will be affected? I. What does it mean to keep the primary refining capacity at 1 billion tons? The continued phase-out of refining capacity is an overall inevitable trend, and the outdated refining capacity to be phased out will be concentrated mainly in Shandong. The Plan clearly stipulates that by 2025, China’s primary crude oil processing capacity should be kept below 1 billion tons, and the utilization rate of production capacity for major products should be raised to over 80%. What impacts will this have on our country’s chemical industry? First, the continued phase-out of refining capacity is an overall inevitable trend. According to the latest statistics on refining capacity, by the end of this year, China’s capacity for primary processing of crude oil is expected to reach 910 million tons per year, showing positive growth for several decades in a row. If, as required by the Plan, the primary processing capacity for crude oil is to be kept at 1 billion tons per year by 2025, then there is still a potential for an additional 90 million tons per year in terms of primary processing capacity for crude oil. In other words, assuming that current refining capacity remains unchanged, over the next 4 years it will only be possible to bring online 9 refining units with a capacity of 10 million tons per year, or 4 to 5 refining units with a capacity of 20 million tons per year. However, reality dealt a heavy blow to our country’s refining industry. According to statistics, from now until 2025, 15 oil refining units will come online in China, resulting in an additional total crude oil processing capacity of over 200 million tons. Of these, 5 units will have a processing capacity of 20 million tons per year or more, and 11 units will have a capacity of 10 million tons per year or more. If all the currently under-construction integrated refining and chemical projects come online as planned, China’s primary processing capacity for crude oil will approach 1.2 billion tons per year, which is 200 million tons more than the 1 billion tons per year specified in the plan. A processing capacity of 1 billion tons of crude oil per year is a \"hard indicator,\" but all the projects planned for construction are **standardly approved projects, and it is not possible to cancel them or reduce their scale. Therefore, the elimination of small-scale and outdated production capacity will become the main method for bringing China’s refining capacity up to standard. It is estimated that over the next 4 years, China will need to phase out 100 million to 150 million tons of its crude oil processing capacity in order to achieve the goal of 1 billion tons in processing capacity. Second, the outdated refining capacity to be phased out will be mainly concentrated in the Shandong region. To meet the targets set in the “Plan”, it appears that China’s refining capacity will be regulated based on criteria related to small-scale operations and outdated production capabilities. What are small-scale and outdated production capacities? In simple terms, it refers to plants with a capacity of 5 million tons per year or less. Statistics show that by the end of 2020, there were 115 crude oil processing units in China with a capacity of less than 5 million tons per year. These units accounted for 64% of the total number of refining enterprises, with a combined production capacity of approximately 240 million tons. In terms of the distribution of these facilities, Shandong is the region with the largest concentration. By the end of 2020, Shandong’s capacity for primary crude oil processing exceeded 240 million tons, which is more than 100 million tons higher than that of Liaoning, the second-ranked province in this regard. Conservatively estimated, over the next 4 years, more than 60 small-scale refineries will face consolidation and closure, with Shandong, being the region where the most such refineries are located, being the most affected. II. Has the ceiling for future oil supply already appeared? The supply of gasoline will reach its peak, which is expected to correct the imbalance in diesel supply and demand; meanwhile, the development of products such as fuel oil, asphalt, and liquefied petroleum gas will be restricted. The refining industry lies at the forefront of the chemical industry, and its scale determines the overall size of the chemical industry as a whole. The primary processing capacity for crude oil is set to be 1 billion tons by 2025, which indicates that China’s maximum capacity for crude oil processing is 1 billion tons. This also means that there will be a ceiling on the supply of oils and refining by-products in China. First, the supply in the gasoline market will reach its peak. According to the data, the annual growth rate of gasoline consumption in our country is 1%–2%, with a trend of gradual slowdown. By the end of this year, China’s gasoline supply is expected to reach 130 million tons, an increase of about 2% compared to the previous year. If we follow the requirements of the Plan and estimate based on an 80% production rate, China’s gasoline production should remain at around 140 million tons by 2025. However, due to the large number of projects planned for construction in the future, it is highly likely that they will all come online by 2025. Based on the growth rate of planned and under-construction projects and the current primary crude oil processing capacity, gasoline production is estimated to rise to around 160 million tons by 2025. It is evident that, at the current rate of growth in gasoline supply, the requirements of the Plan will not be met. Within the next 4 years, the supply of gasoline must be slowed down. Furthermore, the Plan also specifies the need to regulate oil and gas consumption reasonably, keep oil consumption within an appropriate range, gradually adjust the volume of gasoline consumption, and vigorously promote the use of advanced bio-liquid fuels and sustainable aviation fuels as alternatives to traditional fuels in order to improve the energy efficiency of end-use fuel products. Secondly, it is expected to rectify the imbalance between diesel supply and demand. Since 2018, the growth rate of China’s apparent diesel consumption has been consistently negative. There is a consensus within the industry that China’s diesel consumption market has begun to shrink. In accordance with the requirements of the Plan, by 2025 the primary processing capacity for crude oil is to be kept at 1 billion tons per year; accordingly, the theoretical output of diesel will be around 180 million tons. However, based on the current rate of decline in diesel consumption, diesel production is expected to drop to around 170 million tons by 2025. Therefore, the release of this plan will help correct the supply-demand imbalance in the diesel market to some extent, but care must still be taken to avoid the ongoing impact of an oversupply situation. Finally, the development of products such as fuel oil, asphalt, and LPG (liquefied petroleum gas) will be restricted. At present, China is facing a shortage of products such as fuel oil, asphalt, and LPG, while the consumer market as a whole is showing a slow growth trend. It is estimated that by the end of this year, China’s fuel oil production will be around 24 million tons, its asphalt production around 31 million tons, and its LPG production around 44 million tons. As the easing of the pandemic boosted consumer spending, consumption levels this year increased on a year-on-year basis. Without the restrictions imposed by the “Plan”, based on historical trends in supply growth, and assuming that the current production scale remains stable, coupled with the gradual commissioning of integrated refining and petrochemical projects, the output of LPG, fuel oil, and asphalt is expected to reach record highs by 2025. Now, due to the restrictions on refining capacity set out in the Plan, by 2025 China’s production of fuel oil and LPG is expected to decline significantly compared to the earlier estimates; specifically, LPG production is set to drop by about 800,000 tons, while fuel oil production is expected to fall by about 750,000 tons. However, due to the numerous projects planned, asphalt production is expected to exceed the production level limits set out in the Plan by 2025. III. Will the decrease in naphtha supply cause a “major upheaval” in the chemical industry? A shortage of naphtha supply will drive the rise in the use of naphtha substitutes and lead to a continuous increase in imports of related raw materials, accelerating the elimination and consolidation of small-scale and outdated production capacities within the downstream industrial chain. Naphtha is an important and fundamental raw material in the production process of the chemical industry. With the current scale of oil refining remaining unchanged, and taking into account the integrated refining and chemical projects planned for the future, China’s theoretical output of naphtha is expected to be around 130 million tons by 2025. However, after the introduction of the Plan, estimates based on scale restrictions suggest that China’s naphtha production will remain at around 110 million tons; in other words, an output reduction of 20 million tons will be necessary (this calculation is based on the theoretical production volume of naphtha, rather than its actual marketable volume). The ‘braking’ of development caused by external forces will inevitably lead to severe internal upheavals, which will undoubtedly have a significant impact on the existing supply and demand structure for naphtha. Under such circumstances, China’s chemical industry is likely to experience the following trends: First, a shortage of naphtha supply will drive the rise in the use of naphtha substitutes. Such as propane, ethane, butane, and other chemical products that can serve as alternatives to naphtha as raw materials. This trend will also greatly drive the development of the light hydrocarbon utilization industry. Second, the growth rate of imports of naphtha, chemical products, and related raw materials will accelerate. Given the insufficient supply of naphtha, companies that produce single chemical products, such as PX (para-xylene) plants, PTA (purified terephthalic acid) plants, and ethylene glycol plants, will inevitably seek raw material supplies from overseas markets, driving a continuous increase in imports. Third, accelerate the phasing out and integration of small-scale and outdated production capacities in the downstream chemical industry chain. There is a shortage of naphtha supply, and the plan calls for the capacity utilization rate of key products to be raised above 80%. Against this backdrop, it will further drive the elimination and consolidation of small-scale and outdated production capacities in the downstream chemical industry chain that relies on naphtha. Some industries are expected to undergo significant structural adjustments in order to achieve resource concentration and reallocation. In recent years, driven by the trend toward lighter crude oil, global naphtha supply has shown an overall upward trend. However, under the influence of the relevant plan, China’s naphtha market is likely to develop in a very different manner. As a major global consumer of naphtha and crude oil, the slowdown in the supply of naphtha resulting from this plan will not only affect domestic chemical production but also have an impact on the structure of the global petrochemical industry. IV. Main Objectives of the Carbon Peaking Action Plan: During the 14th Five-Year Plan period, significant progress will be made in adjusting and optimizing the industrial structure and energy mix. Energy utilization efficiency in key industries will improve markedly, coal consumption growth will be strictly controlled, the development of a new type of power system will accelerate, new advances will be made in the research, development, and application of green and low-carbon technologies, green production and lifestyle patterns will be widely adopted, and the policy framework supporting green, low-carbon, and circular development will be further improved. By 2025, the share of non-fossil energy consumption is expected to be around 20%, energy consumption per unit of GDP will have decreased by 13.5% compared to 2020, and carbon dioxide emissions per unit of GDP will have fallen by 18% compared to 2020, thus laying a solid foundation for achieving carbon peak targets. “During the 15th Five-Year Plan period, significant progress was made in adjusting the industrial structure. A clean, low-carbon, safe, and efficient energy system was initially established; low-carbon development models were largely developed in key sectors. The energy utilization efficiency in major energy-consuming industries reached international advanced levels. The share of non-fossil energy consumption increased further, while coal consumption gradually declined. Key breakthroughs were achieved in green and low-carbon technologies. Green lifestyles became a conscious choice for the public, and a policy framework for green, low-carbon, and circular development was basically put in place. By 2030, the share of non-fossil energy consumption is expected to be around 25%, and carbon dioxide emissions per unit of GDP will have decreased by more than 65% compared to 2005, thus achieving the goal of reaching a peak in carbon emissions by 2030.