Current situation of small-scale oil refineries in China

Of the 82 local refineries that were ultimately retained nationwide, Shandong accounted for 21 of them. In 2000, the **Economic and Trade Commission issued a document stipulating that Sinopec should take charge of Shandong’s crude oil operations. As a result, the raw materials and sales of Shandong’s local refineries are under the control of Sinopec. However, the overall situation of local refineries in Shandong is still good; especially during times of shortage of refined oil products, they help to supplement the market supply to a certain extent, particularly addressing the urgent needs of some provinces in the south, thus providing an excellent alternative source of oil products outside of the two major groups. Some of the statements regarding local refineries are now outdated; some refineries have reached a capacity of over 3 million tons, and the term \"small\" is no longer applicable to these local refineries. At present, the annual comprehensive raw material processing capacity of local refineries in Shandong has reached 40 million tons, and the total number of employees at these 21 refineries is 28,000; they have become key local enterprises in their respective regions.

**Support should be provided to small refineries, as they play a key role in the local economy. It is said that there will be an increase in the amount of crude oil allocated to these small refineries; it’s not clear whether this is true.

There are quite a number of small oil refineries in Guangdong. I wonder where the original poster got their information from

There are 3 in Shandong Province; I’m not sure where this figure comes from. In Dongying alone, there are over 10 such companies, and their performance has been fairly good in recent years

What was said upstairs is correct – local refineries should be given their proper recognition, especially those in Shandong. They have developed rapidly in recent years, with their comprehensive processing capacity now reaching at least 30 million tons. Their operation rates, product quality, and environmental protection practices have all reached a certain standard. Not only do they serve as a key industry in those regions, but they have also made significant contributions to addressing the domestic oil shortage problem Moreover, several of the larger companies in this sector are no longer what they used to be; for example, Binzhou Chemical Plant and CNOOC’s restructured CNOOC Asphalt Company – whose 36-1 heavy traffic asphalt has become a well-known brand in China ； After the restructuring of several companies such as Changyi Petrochemical, Huaxing, and Zhenghe, along with Sinochem Group, they have become chemical production bases for Sinochem……

Judging from the **NDRC’s attitude toward small refineries, there has been a significant change. After all, small refineries have their own niche for survival: on one hand, they serve as a pillar of local finance, and on the other hand, they can act as a useful supplement to the finished oil supply provided by the two major groups. It is said that the **Development and Reform Commission is currently formulating a plan to adjust small-scale oil refining operations. The approach has shifted from one of restriction to one of facilitation; rules are being established based on factors such as the nature of the crude oil processed and the type of products produced, with those whose facilities do not meet the standards being forced to cease operations.

Sinopec and CNPC built 30 refineries with a capacity of 10 million tons each during the 11th and 12th Five-Year Plans, which will make it even more difficult for local refineries to survive.

The scale of local refining in Shandong is around 40 million tons, and it has mainly developed in this century. Its growth rate has been even more astonishing after being acquired by large groups such as Sinochem; it can truly be described as changing with each passing day!

Local refineries serve as the economic backbone of various regions, making a significant contribution to local finances. They also help to provide employment for many people, and they act as a complement to the two major groups in this industry.

Can you tell me the source of the information? 5 in Xinjiang? Have never heard of it; express strong doubt

Hainan’s large-scale oil refining plant has already started operations, and Yunnan is about to launch its own large-scale oil refining plant as well!

**There has been a constant push for energy conservation and emission reduction; many small oil refineries should be rectified

Don’t be fooled by the small size of their factory – they still achieve high profits! They are all eager to develop; as long as you have good skills, they are willing to spend money – bold and visionary! If given enough space, they will surely make their own way and play a significant role in **’s oil strategy! Moreover, working at a local refinery is also a great option! Many of my seniors went to local refineries, and they are leading very fulfilling lives now!

**The policies regarding local refineries should also be adjusted appropriately, after all, this is beneficial for the ordinary people as well

The large refineries of Sinopec and CNPC complain of increasing losses as they continue to operate, while local refineries in Shandong are expanding despite these challenges. Why is this? 　　“The domestic refining industry incurred losses of 4.19 billion yuan in the first half of the year, compared to a profit of 16.38 billion yuan in the same period last year. On July 27, at the press conference on the economic performance in the first half of 2005, Cao Yushu, spokesperson for the National Development and Reform Commission, said as much. With international crude oil prices occasionally exceeding $60 this year, such figures indeed seem logical. 　　However, while Sinopec and CNPC – the backbone of China’s refining industry – complain that they are losing money more and more with each round of refining and keep urging the National Development and Reform Commission to raise the prices of refined oil products in order to address the issue of negative oil price margins, several local refineries in Shandong, which have been allocated only 1.8 million tons of crude oil per year but possess a refining capacity of 30 million tons, are reported to be making profits and enjoying very successful business operations. How do these local refineries make money? Where does their oil come from? With these questions in mind, reporters from China Entrepreneur traveled to cities such as Qingdao, Jinan, Dongying, and Laizhou in Shandong at the beginning of August to conduct interviews, and discovered that there exists a fairly large-scale \"underground ecosystem\" for the supply and distribution of crude oil around local small refineries. 　　“Why is the small refinery expanding against the trend? Driving 20 minutes north from Dongying City, the location of the Sinopec Shengli Oilfield Administration, one arrives at the Shenghua Refinery complex, which is just across the street from the East China Campus of the University of Petroleum. 　　On August 7, when the reporter arrived at the site, they saw long queues of Steyer tank trucks driving straight in along a road that was essential for entering the Shenghua factory complex, causing the already narrow road to become extremely congested. “It has been like this every day on this road since the company’s atmospheric and vacuum distillation unit came online last year. ”A local driver said. 　　In 1999, there was a campaign to rectify and reorganize the small oil refineries; Shenghua Oil Refinery was one of the 21 local small oil refineries in Shandong that survived this reorganization (referred to as “local refineries”). In 2000, the **Economic and Trade Commission issued regulations imposing a strict system for allocating crude oil quotas to the local small refineries that remained in operation; the crude oil quota allocated to local small refineries in Shandong accounted for only about 20% of their processing capacity. The quota assigned to Shenghua was only a little over 100,000 tons, while at that time Shenghua’s processing capacity was around 300,000–400,000 tons. 　　A few years ago, Shenghua was also worried about the lack of oil supplies. Today, it has a refining capacity of 1.1 million tons, with an average annual operating rate of over 80%. The convoys that come to buy oil fill the streets near the factory every day, leaving them completely congested, and as a result the company’s profits have doubled year after year. 　　A teacher at the East China Campus of the Petroleum University said that in recent times, rising domestic prices for refined oil products have helped many local refineries that were once in trouble to turn things around, and many private refineries that had been shut down have emerged again like mushrooms after rain. 　　Dongying and Binzhou, located around the oil production areas of the Shengli Oilfield, are recognized in Shandong as areas where small refineries are concentrated. The seven local refining companies in this region – Zhenghe, Kenli, Huaxing, Hengyuan, Jingbo, Dongming, and Binhua – all have an annual production capacity of over 1 million tons, with some exceeding 2 million tons. Among them, Binhua and Huaxing are even attempting to scale up from small refineries to medium-sized refineries. 　　According to an insider from the Dongxin Oil Production Plant of the Shengli Oilfield, who spoke to reporters, the current refining capacities of the Kenli Chemical Plant and the Lijin Refinery are over 1.9 million tons and 1.8 million tons respectively. Although the top executives of these two companies denied this in interviews with journalists, given that they installed 800,000-ton crude oil distillation units and 500,000-ton catalytic cracking units last year, in addition to their existing refining facilities, they now have the capacity to process nearly 4 million tons of crude oil. However, these two refineries could only receive a quota of just over 300,000 tons of crude oil per year in the past. If they followed strictly the rules set by Sinopec, which assigns them the crude oil quotas (based on the restructuring of the petroleum industry in 1998, Shandong fell under Sinopec’s jurisdiction), they would have to operate on a schedule of one day of production followed by a week of shutdown, making it difficult for them to survive. 　　However, the source told reporters that over the past two years, these two refineries have not only never stopped operating, but have in fact been doing quite well. 　　According to public data, in the year 2004 alone, the crude oil processing capacity of local refineries across Shandong province increased by 2 million tons, with an additional 3 million tons set to be added through expansions in 2005. Including the production capacity of private refineries that are not among the 21 refineries retained, the total production capacity of local refineries in Shandong Province could now exceed 30 million tons. “In fact, since local refining companies expand their capacity quietly, it is quite difficult to accurately estimate their production capacity. ”A senior official from the Shandong Oil Refining and Chemical Industry Association said. 　　During the interview in Qingdao, the reporter also accidentally “discovered” a company said to be Shandong’s largest private oil refining enterprise. Of course, it is not among the “21” refineries that remain in operation; its official name is “Qingdao Guangyuanfa Asphalt Plant”. 　　The person in charge of the general manager’s office at the factory told reporters that Guangyuanfa plans to build a crude oil terminal with a capacity of 300,000 tons in Aoshanwei, Jimo, by 2007. Once completed, this terminal will be the largest of its kind in China, on par in size with the crude oil terminal that Sinopec will put into operation at Huangdao Port in Qingdao. “Our goal is to integrate the entire storage, transportation, refining, and processing industry chain. By then, Guangyuanfa’s crude oil refining capacity will also reach 10 million tons, making it a leader among private enterprises in the oil refining sector in China. ” 　　At present, Guangyuanfa operates 2 atmospheric and vacuum distillation units with a capacity of 1 million tons each, as well as 1 catalytic cracking unit with a capacity of 800,000 tons (the former are used for primary crude oil processing, while the latter is used for secondary refining). Its annual crude oil processing capacity is 3 million tons, allowing it to produce over 1 million tons of gasoline and diesel per year. Together with four smaller refineries that have been built or acquired in places such as Penglai, Heze, and Liaocheng, Guangyuanfa Group’s crude oil refining capacity is now approaching 7 million tons. 　　However, after an ambitious introduction, the official suddenly realized the reporter’s identity and flatly denied that the company possessed any refining facilities. But as the reporter saw, those two atmospheric and vacuum distillation units used for oil refining indeed stood in the factory area. 　　Against the backdrop of inverted prices for crude oil and refined products in the country, as well as losses incurred by state-owned refineries with a total capacity of 200 million tons, it is truly remarkable that local small refineries in Shandong are able to operate against such unfavorable conditions! A person from the Shengli Oilfield expressed such feelings. 　　The reason why small refineries across Shandong are increasing their production capacity is that there is still a significant profit margin in oil refining. An industry insider did some calculations for the reporters: with current crude oil futures prices exceeding $60 per barrel, local refineries in Shandong purchase crude oil at around 3,200–3,400 yuan per ton (approximately $45 per barrel), which is far lower than the price in the futures market. The price of crude oil imported by Sinopec is generally 3,850 yuan per ton (approximately 53 dollars per barrel). Moreover, the cost of processing crude oil at local refineries is generally around 40 yuan per ton, which is typically 100 yuan per ton or more lower than the processing costs at the state-owned refineries of CNPC and Sinopec. Therefore, while state-owned refineries complain of increasing losses, domestic refineries can still make substantial profits. Generally speaking, their profit per ton of crude oil processed ranges from 200 to 600 yuan. 　　Three “public channels” for oil supply to refineries Of course, what is even more remarkable is: **given the huge gap between crude oil quotas and the production capacity of local refineries, where will these refineries obtain the oil needed to expand their operations?** 　　The composition of the oil sources for local refineries in Shandong is quite complex. According to available information, there are mainly three public channels from which local refineries in Shandong obtain their raw materials. The first channel is the most \"official\"; it involves the **quota-based oil mentioned earlier, amounting to 1.8 million tons per year. However, this amount is clearly insufficient compared to the local refineries’ processing capacity ； 　　The second type is heavy oil produced from inefficient oil fields such as those in Tarim, Xinjiang, and the Liaohe River region; this type of oil is characterized by high levels of sulfur, asphaltene, and coke. The processing equipment became severely corroded within just three months; neither of the refineries belonging to those two large groups wanted to take it. However, small refineries in Shandong managed to solve the problem of equipment corrosion through technological innovation. This portion of the oil source amounts to about 2-3 million tons. 　　The third option is fuel oil with lower import prices. 　　Fuel oil is a type of oil whose import is unrestricted; therefore, refineries account for the largest volume of purchases among all sources of oil. Since it is directly related to the \"underground passages\" we will mention later, it would be appropriate to first introduce the process of refining fuel oil here. 　　Fuel oil is primarily made from the cracking residues of petroleum and straight-run residue oil; it is characterized by high viscosity and a high content of non-hydrocarbon compounds, gums, and asphaltenes. Currently, fuel oil imported into the country is widely used as fuel for ship boilers, heating furnaces, metallurgical furnaces, and other industrial furnaces. However, higher-quality oils, such as 180# fuel oil, can still yield 15%-30% diesel after catalytic cracking, while the highest-grade fuel oil, M100, can produce 40%-50% both gasoline and diesel when catalytic materials are used. 　　From 2002 to 2004, Shandong Province’s fuel oil imports surged from less than 1 million tons to over 8 million tons. According to Lin Qiang, market manager at Dongfang Oil & Gas Network, if prices remain stable, Shandong’s total fuel oil imports this year are likely to exceed 1,000 tons, accounting for more than 1/5 of China’s total fuel oil imports. 　　The fuel oil in Shandong mainly comes from Singapore. “Although the characteristics of this purchased fuel oil mean it is considered secondary oil, and some of it has a relatively high sulfur content, after being transported to local refineries and processed using special equipment, there is still a profit margin of 100 to 300 yuan per ton of fuel oil. ”A person who has long been engaged in oil refining research told reporters. 　　Due to the restrictions imposed by current policies, aside from the four major state-owned crude oil importers and a few other companies, the vast majority of small and medium-sized enterprises that deal in fuel oil can only rely on various channels, such as secondary or tertiary agents, to entrust qualified companies capable of conducting overseas hedging operations, in order to carry out risk management and financial transactions in Singapore’s \"paper goods market\". 　　It is understood that currently, the scale of Singapore’s fuel oil paper market, which serves as an over-the-counter market for derivatives, is more than three times that of the spot market. Approximately 100 million tons of fuel oil are traded each year there, of which around 80% relates to speculative trading, while 20% is for hedging purposes. 　　Wang Chao is the chief representative of a domestic fuel oil trader in Singapore. Due to his frequent travel between China and Singapore, he has a thorough understanding of the paper goods market. According to him, for domestic traders, the paper goods market offers many advantages and benefits; one of them is that no upfront capital is required nor are any taxes to be paid, which eliminates the need for capital turnover ； Secondly, the paper goods market is an informal market that relies on credibility; transactions are usually settled at the average price over ten days, and \"it often takes just one phone call to settle things.\" 　　It is understood that Singapura Heng Long Company is one of the largest market makers in Singapore’s fuel oil market, with its owner, Lin Qiang, being known as “OK Lin”. According to people close to him, Lin Qiang, who has been at the helm of Singapore’s oil trading market for nearly 20 years, possesses such substantial financial resources and market influence that he could monopolize the import of small to medium-sized oil products. Just like in stock trading, buying at low prices and selling at high prices is his specialty. In recent months, Lin Qiang has repeatedly purchased large quantities of fuel oil from the market, stockpiling it to sell at high prices later. “Among domestic oil traders, everyone knows him if they import oil from Singapore. ” 　　One of the underground channels: “Substitution.” In addition to the three “main channels” mentioned above, in fact, a considerable portion of the oil supplied to the Shandong refinery comes from unknown sources. According to on-the-ground investigations by reporters, there are three additional “underground channels” for the oil supply to these small refineries in Shandong. Because it is a “underground passage,” many refining companies, when talking about the sources of raw materials for their plants, often refuse to give interviews to journalists on the grounds that it is “sensitive.” 　　Of the three \"underground channels,\" one is actually a \"well-known secret\": the crude oil stolen by criminals from the oil-producing areas of the Shengli Oilfield is generally supplied to refineries near Dongying, Binzhou, and Liaocheng, and the volume involved is quite substantial, at around over one million tons per year. This passage is completely “illegal”; there’s no need to go into further detail here. So, what are the other “underground passages”? 　　The mystery of one of them lies precisely in the fuel oil. Although fuel oil is a good raw material for refining, its price has risen significantly recently due to its connection to crude oil. According to the latest prices in Shanghai’s fuel oil futures market, the price of M100 fuel oil has risen as high as 3,050 yuan per ton, while the price of 180# fuel oil is also close to 3,000 yuan per ton. These prices are already very close to the current price of heavy oil, which is 3,200 yuan per ton. High fuel oil prices have led to increased refining costs; as a result, refineries have sought to use other raw materials to \"replace\" fuel oil. 　　This raw material is actually “crude oil”. According to the reporter’s understanding, the practice of importing crude oil under the guise of fuel oil is very common among refineries across Shandong. 　　On August 6, the reporter contacted Tang, a business representative from Shanghai Zhongsheng Group, in Dongying. In 2004, this company imported 4 million tons of crude oil and fuel oil, and it is one of the largest private oil traders in the country. He revealed to the journalists this method of \"substitution\". 　　“It’s actually very simple: simply extract or reduce one or several components in the imported crude oil to such an extent that they cannot be detected using SGS (the standard method for testing crude oil used by customs). ”Tang said. “As far as I know, an increasing number of refineries in China are importing crude oil in this way; alone in Shandong Province, the amount is 3 million tons per year, while the country as a whole imports over 10 million tons per year. ” 　　Regarding the feasibility of \"importing crude oil\" using this method, the reporter interviewed Yin Zhen, a researcher at the Department of Comprehensive Transportation of the National Development and Reform Commission who is familiar with the processes involved in crude oil transportation. Yin Zhen believes that from a technical perspective, it is not difficult to import crude oil under the guise of fuel oil; however, this process involves many steps, and the key lies in finding a way to obtain high-quality and inexpensive oil in overseas markets. 　　To figure out what goes on with the conversion of fuel oil into crude oil, on August 6, with the help of an oil intermediary, the reporter boarded a small cargo ship capable of carrying hundreds of tons and set off from Yangkou Port in Dongying, Shandong Province, heading to Laizhou Port, which is referred to by refineries across Shandong as the \"Jiaodong Crude Oil Route\". 　　Laizhou Port, also known as Sanshandao, is one of the few ports in Shandong Province that possess crude oil terminals and oil storage facilities. The port has an oil terminal capable of accommodating 20,000-ton oil tankers, as well as an oil storage facility that can hold 60,000 tons of crude oil. Thanks to its favorable geographical location, it has been favored by local refineries across the Shandong Peninsula for several years; convoys of refineries coming from places such as Dongying, Binzhou, and Weifang to pick up oil arrive there in large numbers every day. 　　The reporter waited at Laizhou Port for two days, witnessing part of this gray market activity in Shandong. 　　On the morning of August 7, the Russian oil tanker \"Bem\", with a carrying capacity of 15,000 tons, and the tanker \"Ningda 1\", with a carrying capacity of 3,500 tons, arrived at Laizhou Port at the same time. The reporter learned from the Laizhou border coast guard checkpoint that these two oil tankers are regulars at Laizhou Port, transporting crude oil and making several trips to and from the port each month. 　　According to an official from Changyi Dongfang Petrochemical Port Co., Ltd., the owner of Laizhou Oil Terminal, the vessels \"Bem\" and \"Ningda 1\" often load and unload imported crude oil under the guise of fuel oil. The cargo owners are all local refineries from Dongguan and Binzhou. 　　Underground Passage 2: “Birth through Surrogacy” Kang Xiaoping is an oil broker from Jiangyin, Jiangsu Province; he currently works for a refined oil trading company owned by his relative, dealing in crude oil imports. Thanks to the high volume of transactions, Kang earns a commission income in the six-figure range every month. 　　He revealed to journalists another \"underground channel\" through which domestic local refineries can obtain crude oil from abroad – by using the quotas and production plans of China’s three major petroleum companies to import foreign crude oil or directly purchase stored crude oil (it should be noted that such transactions are completely different from the quotas allocated to local refineries). 　　“For example, to import 1 million barrels of crude oil from Saudi Arabia (the price in Dubai is the lowest among all global crude oil prices, usually 2-8 dollars lower than the price in Singapore, which is why it is the preferred choice for many oil traders), one can first choose an import-export company affiliated with one of the national oil companies to negotiate the import contract. Once a quota is obtained, that company will then arrange the production schedule. The production schedule is nominally intended for the two major companies, but in reality it serves as a cover for traders to import crude oil. At present, among domestic crude oil importers, only the import and export companies of the three major petroleum companies—CNPC, Sinopec, and CNOOC—are qualified to arrange production schedules. ” 　　“To utilize the quotas and production plans of these three companies, it generally requires very strong internal relationships in their key departments. ”Kang Xiaoping told the reporter, “The cost of using internal connections is generally 100 yuan per ton; an additional 20 yuan per ton in agency fees is required when using the production schedule.” Furthermore, if using the connections of an intermediary company, a commission of 0.2 dollars per barrel must also be paid to the intermediary. ” 　　By using the import quotas and production plans issued by the three major groups to import and purchase crude oil, this method of \"using someone else’s resources to achieve one’s own goals\" is being used by, or has been used by, refineries in most areas of the Shandong Peninsula. However, their “transactions” with the three major oil companies are essentially in a “gray area.” 　　“Crude oil imports are like a pyramid: at the top, reaping the benefits are the most powerful ‘wholesalers’, while various intermediaries and brokers engage in speculation to maximize profits; it is ultimately the **small local and private refineries** that bear the cost of this entire chain. ”An insider said as much. 　　It is understood that there are currently a considerable number of oil brokers active around refineries across the country and in Shandong. On various oil trading websites, they leave posts offering cooperation as well as their contact information. Their role is to assist local domestic refineries in arranging crude oil imports and purchases both domestically and internationally. And the methods are nothing other than the two approaches mentioned above: \"substitution\" and \"bearing a child through another person.\" 　　A small underground oil refining ecosystem has clearly taken shape in Shandong. However, from the perspective of **energy security**, do these local refineries in Shandong, which add over 10 million tons of refined oil to our country each year, despite not being entirely ideal, still have a legitimate reason for existing?

Who has information on various small refineries?