It is difficult to sustain large-scale expansion of local refining facilities; a more refined development model is gaining favor

Thread Content

As the domestic economic growth rate slows down, apparent diesel consumption has declined. With an oversupply of refined oil products in the country, the demand for refined oil products produced by local refineries in Shandong has reached saturation, and the market conditions do not permit a further significant increase in their production capacity. At present, local refineries in Shandong face significant competitive pressure. For most of them, it is more appropriate to adopt a defensive development strategy – by leveraging their own production advantages to avoid or mitigate external threats and strive to retain their current market share – as capacity expansion is not a wise move. 　　Specifically regarding refining facilities, in the case of atmospheric and vacuum distillation units, since the beginning of this year, **by granting local refineries the right to import crude oil, it has been possible to further eliminate idle production capacity among these refineries and optimize the industrial structure. In 2015, Shandong’s local refineries managed to reduce their total atmospheric and vacuum distillation capacity by 25.87 million tons per year through such measures. The interest from local refineries in obtaining the right to import crude oil continued in 2016 as well; therefore, it is very likely that the production capacity of Shandong’s atmospheric and vacuum distillation units will decline for the first time, with a reduction of around 10 million tons per year. 　　In the secondary processing facilities, the production capacities of catalytic cracking and delayed coking units remain relatively stable. Meanwhile, as the upgrading of domestic oil products accelerates and policy guidance becomes clearer, various hydrogenation and desulfurization units in Shandong’s local refineries are becoming more active. Refineries are investing in hydrogenation projects through upgrades and new constructions; in the new facilities to be built in Shandong’s refining sector over the years 2016 and 2017, hydrogenation units will account for 52% of them. 　　Overall, in the future, the development of refining units in Shandong will focus more on improving product quality. At the same time, fine chemical industries will be developed through the use of units such as catalytic reformers, and units for hydrogenation and reforming will be highly active.