Another 7.4 million tons of production capacity to be reduced this year! The consolidation of local refineries in Shandong has entered its middle phase”

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This year is a crucial one for Shandong, a province with a large number of local refineries, as it accelerates the integration of its production capacity. The recently issued \"2022 Action Plan for the High-End Chemical Industry in Shandong Province\" calls for efforts to reduce and integrate the production capacity of these local refineries. It is necessary to carry out this process in a careful and orderly manner regarding the 7.4 million tons of production capacity that belongs to three such companies – Haikewu Chemical, Guangrao KeliDa, and Chengda New Energy – in order to ensure that the annual targets for capacity integration are met on time. The consolidation of local refineries in Shandong has now entered its middle phase. Reports indicate that since the beginning of this year, the outdated production capacity of local refineries in Shandong has been phasing out at an accelerated pace. In March, an online auction announcement for oil refining equipment was posted on JD Auction. The subject matter is the dismantling equipment for petrochemical refining at the Dongying Petrochemical Refinery; its original value was approximately 12 billion yuan, with a starting bid price of 1.265 billion yuan. However, the auction was temporarily suspended due to the pandemic. Additional reports suggest that in May, the refining equipment of 4 more refineries will be put up for auction online. Shandong Province is China’s largest refining and chemical industry base, with its initial crude oil processing capacity once reaching 210 million tons per year. Among them, the total production capacity of local refineries amounts to 180 million tons per year, accounting for 70% of the country’s overall local refining capacity. Starting in 2015, the province phased out outdated production capacity and reduced and restructured it in two stages. The first phase was from 2015 to 2018; taking the delegation of crude oil import rights as an opportunity, local refining companies were encouraged to apply for import quotas for crude oil on the condition that they phased out outdated production capacity, and 32 such companies eliminated more than 52 million tons of such outdated capacity in total. During this period, through the reduction of outdated capacity and replacement upgrades, domestic refining capacity dropped to around 130 million tons per year. The second phase began in 2019; through the implementation of the Yulong Island refining and chemical integration project, the refining capacities of local refineries located in urban areas with a capacity of 3 million tons per year or less were consolidated and relocated. The first batch of companies to agree to such integration and transfer included 10 enterprises; over the past two years, 7 of these enterprises withdrew a total capacity of 19.56 million tons, and by the end of this year, another 3 enterprises are planned to withdraw a capacity of 7.4 million tons. The total of 26.96 million tons in terms of production capacity that will be phased out will be allocated entirely to the Yulong Island refining and chemical integration project (Phase I). In accordance with Shandong Province’s commitment to a replacement ratio of no less than 1:1.3, a total of 20 million tons of new production capacity will be created as a result. At present, the Yulong Island refining and chemical integration project (Phase I) is in full swing, with Yantai City requiring that the main construction work be completed by mid-June 2023. Meanwhile, local refineries that have been removed from the capacity quota system are also actively planning for transformation and upgrading. Recently, the high-end carbon materials industrial park project of Shandong Hengyuan Petrochemical Group Co., Ltd., with a total investment of 4.1 billion yuan, began construction. This project is part of Hengyuan Petrochemical’s strategy to relocate and transform its 3.5 million tons per year of refining capacity; it focuses on the production of graphite products and asphalt-based carbon fibers, with an emphasis on developing the high-end carbon materials industry chain. After two rounds of consolidation, the number of local refining enterprises in Shandong Province dropped to less than 40, with an average capacity of 3.5 million tons per year. Among them, 15 companies have a production capacity of 5 million tons per year or more, further increasing the industry concentration. According to the ‘14th Five-Year’ Development Plan for Shandong Province’s chemical industry, in the coming years the existing high-quality enterprises will continue to play a leading role in driving integration and restructuring; strict adherence to capacity replacement ratios will be ensured, so as to maintain a steady decline in oil refining capacity without any increase.