Exploration of the paths for structural adjustment, transformation, and upgrading of China’s refining industry under low oil prices

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Main contents:
I. Achievements of China’s refining industry during the 12th Five-Year Plan period
II. The impact of low oil prices on China’s refining industry
III. Strategies for restructuring and upgrading China’s refining industry structure

I. Achievements of China’s refining industry during the 12th Five-Year Plan period
China’s refining capacity has grown rapidly, enabling the country to become one of the world’s major refining nations, ranking second globally. By the end of 2015, China’s refining capacity was approximately 745 million tons per year. In 2005 and 2010, this capacity was 350 million tons per year and 520 million tons per year respectively. The average annual growth rates during the periods 2005–2010 and 2010–2015 were 8.4% and 7.5% respectively, indicating a steady pace of development. From 2005 to 2015, China’s oil refining capacity doubled, making it the second-largest oil refining country in the world after the United States. Referring to the annual statistics on global refining capacity published by American oil and gas magazines, in 2015 China’s refining capacity accounted for 15.5% of the global total, an increase of 7.5 percentage points compared to 2005. Consumption trends for gasoline, kerosene, and diesel vary: demand for gasoline and kerosene is strong, while diesel consumption remains stable; the ratio of diesel to gasoline has declined rapidly. In 2015, gasoline consumption was 115.31 million tons, kerosene consumption was 27.7 million tons, and diesel consumption was 173.34 million tons. Since 2010, gasoline consumption has maintained a steady and rapid growth trend, kerosene consumption has accelerated and shown significant growth, while diesel consumption has slowed down. The ratio of diesel to gasoline consumption dropped from 2.18 in 2010 to 1.50. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz85QS4eVgHdHq2wibdtag1jna3T0XULkfjXWNFAmpaRd6AxdXsuF5Jybg/0?wx_fmt=png The scale of oil refining operations has increased significantly; refineries with a processing capacity of tens of millions of tons account for over 40% of the total, and the level of integration has improved. With the construction of a number of large-scale refining projects and the renovation of key enterprises, the scale of refining facilities in China continues to grow. Currently, 24 refineries with a capacity of 10 million tons each have been built nationwide, bringing the total production capacity to 320 million tons per year, accounting for 42.9% of the country’s total capacity. Among them, 15 refining bases are equipped with ethylene plants, indicating a relatively high degree of integration between refining and petrochemical operations. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8VWOUEBIiaB2btsHLDgpHHOWoiaribwVMK5tknxJrdJpdA36tGPtrcqQKg/0?wx_fmt=png The scale of these leading enterprises is at the world average level, with some local refineries experiencing rapid growth. In China, the oil refining enterprises with a capacity of 10 million tons each are mainly under the control of China National Petroleum Corporation and Sinopec; Sinopec has 14 such enterprises, while CNPC has 8. In addition, companies such as CNOOC Huizhou and Sinochem Quanzhou have a capacity of 12 million tons per year. Enterprises like China Chemical Changyi Petrochemical, Yanchang Group’s Yanchang Refinery, Dongming Petrochemical, Ningxia Baota, and Panjin Beiran also have a capacity of 7–8 million tons per year, with many local refineries having a capacity of over 5 million tons. The average refining capacity of Sinopec is approximately 8 million tons per year, while that of CNPC is about 7 million tons per year. The scale of major domestic refiners has basically reached the world average level, giving them a certain degree of scale and strength. However, with 200 refineries existing across the country, each having an average capacity of around 3.7 million tons per year – which is only 50% of the average capacity of refineries worldwide – it is still necessary to increase the scale of these refining enterprises. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8zTFK6EeUnwnln4ibO9lb1a7z0rrzbFSlbGWdbvRurOvTgKDGSvkUhnQ/0?wx_fmt=png http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8IXFSeRnBPTh7RPaKZq3HCrx6ibiaK2z4rYuIyibicFhBOQhulzMW7XTwpQ/0?wx_fmt=png In May 2015, seven ministries and commissions jointly issued the \"Work Plan for Accelerating the Improvement of the Quality of Refined Oil\", Document No. 974 issued by the Development and Reform Commission for Energy Affairs. Starting from January 1, 2016, in the 11 provinces and municipalities in the eastern region ； Starting from January 1, 2017, gasoline for vehicles that meets National Standard V (including E10 ethanol-blended gasoline) and diesel for vehicles that meets this standard (including B5 biodiesel) will be available nationwide, while the domestic sale of gasoline and diesel that fall short of National Standard V will be discontinued. Additionally, in the second half of 2016, Beijing will introduce the Jing VI gasoline standard, reducing the olefin content further to 15‰. In 2019, Guoquan will launch China VI. Refining companies have seen rapid development, with an increasing diversity of participants. Sinopec and CNPC remain the key players in China’s refining industry. At the same time, large state-owned enterprises such as CNOOC, Sinochem, Yanchang Group, North Industries Group Corporation, and Sinochem Group have reached a certain scale, while more than a dozen local refineries including Dongming Petrochemical, Ningxia Baota, and Panjin Beiran have also grown to a significant size. As a result, the refining industry is showing a trend of diversified development. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz82mH1FiarY8Ouoez160CCCFicibXfbKwIBk0QRYq76w6HAfTKwOS1JVWkQ/0?wx_fmt=png Gradually liberalize the import and processing of crude oil to break the monopoly situation and stimulate competitive vitality. **On February 16, 2015, the National Development and Reform Commission issued the \"Notice on Issues Concerning the Management of the Use of Imported Crude Oil.\" Since May 2015, the China Petroleum and Chemical Industry Federation has been organizing verification and assessment efforts for enterprises applying to import oil. As of February 2016, a total of 14 local oil refineries had passed the review. They retained a production capacity of 79.4 million tons per year, and were granted the qualification to import 58.19 million tons of crude oil. Excluding the refineries that have already been approved, it is estimated that there are still over a dozen companies that meet the application criteria; their combined production capacity is around 50 million tons per year. If all of them are approved, they could receive a total of 35 million tons in crude oil quotas. It is expected that local refineries across the country will be allocated over 80 million tons of crude oil. This will effectively resolve the long-standing problem of underutilization and inefficient operation of their refining facilities. As a result, the operating rates of local refineries will significantly increase, and their production capacities will be fully utilized. More and more enterprises are granted the right to import crude oil, which will further intensify competition in the retail market. Local refineries that have obtained approval to use imported crude oil: http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz89QwU5NtrarKicLO06o0xFMtAibiar076z8yUOZYCcCkNbyxfomdDe1ZQA/0?wx_fmt=png As of March 2016, 11 local refineries had been granted such rights. With the relaxation of restrictions on crude oil imports and refined oil exports, as well as the delegation of approval powers to refineries, more market players have entered the refining and sales sectors, leading to increased competition. The pricing mechanism in the refined oil market is gradually being improved, and market-oriented reforms are progressing step by step. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8oufpb6xtPYsU8ObOYz2ZXson49WyLCkia5uMCQsm0ibWpE8Nia7kNiamvg/0?wx_fmt=png II. The impact of low oil prices on China’s refining industry In recent years, the trend of international oil prices has been as follows: The average price of WTI crude oil futures stood at $48.76 per barrel, a significant decrease of $44.15 per barrel compared to 2014—a drop of 47.5%. This represents the lowest average price since 2004. In 2016, global economic growth continued to face numerous challenges, with growth rates likely to be lower than expected. Given that there were no significant changes in macroeconomic factors such as the divergent monetary policies of major economies, the ongoing process of deleveraging, and the persistent risk of deflation, commodity prices, including those of oil, remained under pressure. Three key factors influencing international oil price trends: The overall macroeconomic trend, which affects price expectations; the energy structure and the supply-demand balance of crude oil, which determine the price benchmark. From the perspective of the oil market, it may take longer for the world oil market to reach a new balance, with equilibrium likely to be achieved in the second half or fourth quarter of 2016. The supply surplus in the market kept international oil prices low in the first half of 2016; it is estimated that the average price of Brent crude for the whole year will be between $40 and $45 per barrel, while the average price of WTI crude will be between $38 and $43 per barrel. Unexpected events such as regional tensions can trigger short-term price fluctuations. In the medium to long term, it is difficult for prices to return to historical highs. Recently, oil price trends have been influenced by numerous uncertain factors; however, considering factors such as overall demand and crude oil extraction costs, excessively low oil prices are unsustainable. In the long term, oil prices will continue to rise along with the trend of stable growth in the world economy. It is predicted that by the end of 2016 to 2017, the world oil market will reach a new balance, and oil prices will rise further on the basis of a basic supply-demand equilibrium. It is predicted that after the world oil market reaches a new balance by the end of 2016 and in 2017, oil prices will rise further. Low oil prices have led to a significant decline in the performance of international oil companies, while integrated companies have gained a clear advantage. The sharp drop in international oil prices has severely impacted the performance of all types of oil companies. The revenue and net profits of the five major international oil companies – ExxonMobil, Shell, BP, Chevron, and Total – as well as the six national oil companies – Rosneft, Gazprom, Statoil, Petrobras, Petronas, and Pemex – declined by around 40% and 70%, respectively. However, low oil prices also contributed to an increase in demand. At the same time, the price drops for downstream products were relatively small, resulting in good profits for the refining industry, with average refining gross margins remaining at a high level. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8onTlGTyBXD6RMQQeWpFoPFvEjJiaicyT6qVuVicHvIp3XZdRQVdhQoxHQ/0?wx_fmt=png Low oil prices posed severe challenges for domestic oil and petrochemical companies. The sharp drop in international oil prices in June 2014 led to heavy losses for domestic refineries. In 2015, CNPC, Sinopec, and CNOOC took various measures to ensure the steady operation of production, resulting in a slight increase in production figures. From January to September, the combined crude oil production of the three companies increased by 5.5%, while their combined natural gas production rose by 3.4%; both crude oil processing volume and the sales volume of refined products saw slight increases ； Affected by factors such as a sharp drop in international oil prices and a slowdown in the growth of domestic demand for oil and gas, the operating performance of the three companies declined significantly. From January to September, the sales revenues of Sinopec, CNPC, and CNOOC declined by 25.62%, 27.36%, and 33.43% respectively on a year-on-year basis. The net profits of CNPC and Sinopec dropped by 68.14% and 47.82% respectively, while CNOOC’s net profit for the first half of the year fell by 56.14% on a year-on-year basis. The decline in the operating performance of the three major domestic companies is roughly on par with that of international oil giants. In 2015, China’s refining industry recovered from a low point and achieved good results. That year, the profitability of the refining sector improved significantly, costs continued to decline, and its ability to generate profits kept rising. The operating income margin for refiners throughout the year was 2.60%, up by 3.59 points from the first quarter ； The gross margin was 21.91%, up by 2.40 points. Industry profitability continues to recover. Based on future trends in international oil prices, adjustments to domestic refined oil prices, and growth in market consumption, it is anticipated that the refining industry will continue to perform well in 2016. The overall profit total is expected to increase by more than 10% initially ； Core revenue increased by about 3%. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8GzkydhxfqLYGCoTVxXxXOOR6QJXDK11POt3yhwf2tkSV3x9W19KVgA/0?wx_fmt=png Integrated petrochemical companies enjoy stable performance and increased profits; in 2015, companies such as Shanghai Petrochemical, Zhenhai Refining & Chemical, and Huizhou Refining & Chemical achieved good operational results. Shanghai Petrochemical’s annual report for 2015 shows that the company processed 14.7953 million tons of crude oil throughout the year (of which 2.0101 million tons was processed under contract), an increase of 625,100 tons or 4.41% compared to the previous year. In 2015, Shanghai Petrochemical turned a loss into a profit, with operating profits amounting to 3.9089 billion yuan – an increase of 4.4968 billion yuan compared to the previous year’s operating loss of 587.9 million yuan. Additionally, operating revenue amounted to 80.803 billion yuan, a year-on-year decrease of 20.92%. III. Strategies for the structural adjustment and transformation of China’s refining industry Domestic demand for refined oil products and forecasts: Gasoline Consumption of gasoline is closely linked to the number of passenger vehicles in use, while its correlation with economic trends is relatively weak. With the steady growth of China’s automobile market, gasoline consumption continues to show a strong upward trend. Over the past three years, the annual growth rate of passenger vehicle sales has exceeded 10%, while gasoline consumption has shown strong stability, with an annual growth rate of 9.9%. In 2015, gasoline consumption reached 115.31 million tons, a year-on-year increase of about 9.2%. The ownership of passenger vehicles follows an S-shaped development pattern of ‘slow – rapid – slow’. The fleet of passenger cars grew at an average annual rate of 15% from 2010 to 2020, 5% from 2020 to 2030, and will gradually reach saturation by 2040. Before 2020, it was mainly gas-powered vehicles that replaced gasoline vehicles, while after 2020, the replacement by electric vehicles accelerated. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz824RUmJ7PMATrJwAaRWfyu3UrhmWhp47TpJQK82Mq3Opc7Pst0LKLcg/0?wx_fmt=png Domestic demand and forecasts for refined oil products: Kerosene. Aviation kerosene is primarily used in air transportation, and its demand is closely linked to the volume of air traffic; the rapid increase in passenger and cargo traffic contributes to an upward trend in sales of aviation kerosene. In recent years, the average growth rate of air cargo volume has been around 10%. Consumption of aviation kerosene has also increased year-on-year, with an average annual growth rate of 11.5%. In 2015, kerosene consumption increased by 17.3% on a year-on-year basis, reaching 27.7 million tons. Analysis and forecast of refined oil demand: Diesel. Diesel is primarily used in commercial vehicles, industry, construction, commerce, power generation, railways, and other sectors. Affected by the slowdown in the growth rate of the industrial economy, sales of commercial vehicles have grown slowly, travel rates have declined, and fuel consumption for road logistics has decreased on a year-on-year basis – all of which are important factors contributing to the low level of diesel consumption. In addition, the use of oil in industry and for railways decreased, while its use in agriculture and water management saw a steady, slight increase; the growth rate of oil use in construction slowed down. The increasing consumption of alternative fuels such as natural gas is also a significant factor contributing to the slowdown in diesel consumption growth. The average annual growth rate of diesel consumption over the past three years has been around 0.7%. In 2015, diesel consumption was 173.34 million tons, representing a year-on-year increase of about 0.3%. Domestic demand for refined oil products and forecasts: Based on a comprehensive analysis of the development prospects of the national economy and related industries, it is estimated that the annual growth rate for demand for gasoline, coal, diesel, lubricants, and bitumen will be 3.0% from 2015 to 2020. In 2015, the demand for gasoline, coal, diesel, and lubricants will reach 356 million tons, while the processing volume of crude oil will be around 527 million tons ； It is estimated that in 2020, the demand will reach 425 million tons, while the crude oil processing volume will be 606 million tons. Based on analyses of relevant industry developments, the consumption structure of refined oil products will continue to adjust. The demand for gasoline and kerosene is expected to remain robust, while diesel consumption will slow down or even decline; consequently, the diesel-to-gasoline consumption ratio will further decrease. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8zaibkIQmAV4yqsKuGcjnfh0m8VGHtS7wyVQ8w3Yf9kZ2ORraZIWqK0w/0?wx_fmt=png Several characteristics of China’s refining industry at the current stage: In terms of scale, China’s refining industry is among the best in the world; the standards of China’s advanced refineries are close to or even equal to those of the world’s most advanced refineries. However, the average scale of these refineries remains far below the world average. From an innovation perspective, China has mastered million-ton-level oil refining technology and possesses technological innovation and engineering capabilities. From a layout perspective, China is in a supply and demand situation similar to that of the United States in the mid-1970s, when supply and demand reached balance, with its overall layout largely established. From a resource perspective, our country is facing the same resource shortages that Europe, as well as Japan and South Korea, have encountered since the 1980s; resource risks are increasing, there are significant fluctuations in crude oil prices, and there is ongoing pressure due to a rising dependence on crude oil imports. In terms of quality, the standards for domestic petroleum products have been rapidly improving and are now approaching world-advanced **levels. Numerous contradictions and problems faced in the development of China’s oil refining industry:
Energy supply security issues: The degree of dependence on imported crude oil is rising year by year, and crude oil prices are subject to significant fluctuations.
Problem of overcapacity: While the spatial layout of refineries continues to improve, there remains a pronounced problem of local overcapacity.
Imbalance between supply and demand: The diesel-to-gasoline ratio has declined substantially, necessitating major adjustments to the structure of refining facilities.
Shortage of advanced production capacity: There is a contradiction between the trend toward lower-quality imported crude oil and the rapidly improving quality standards for domestic petroleum products.
Insufficient profitability: Increased investments in energy conservation, environmental protection, and quality improvement have driven up production costs, thereby weakening overall profitability.
Regulation of alternative energy sources: Although alternative energy sources for vehicles are developing rapidly, their fragmented development is gradually having an impact on the oil refining industry.
Goals and principles for industrial restructuring and transformation: Achieving three key transitions—shifting from expansion in scale and quantity to intensive and efficient development ； Transition from basic energy-based to energy-chemical-based model ； Transition from extensive production to refined management. Adhere to the six-oriented development: large-scale, intensive, base-based, integrated, clean, and high-end development. Enhance the positioning of the oil refining industry; fully leverage its fundamental role in the energy structure. Further strengthen the core function of the refining sector within the petrochemical industry. Continuously improve refining efficiency and international competitiveness, so as to become a global leader in oil refining. Strengthen top-level planning to ensure the safe and stable supply of crude oil resources. China’s oil consumption is increasing year by year. In 2015, China’s domestic crude oil production amounted to 550 million tons, while crude oil imports reached 320 million tons. The degree of reliance on foreign sources was 60.8%. It is predicted that in 2020 and 2025, the demand for crude oil will reach 610 million tons and 660 million tons respectively. At that time, the shortage will be 40–45 million tons, with the degree of dependence on imports rising to 65–68%. From the perspective of ensuring the security of crude oil supply, it is necessary to set limits on energy consumption, particularly on the consumption of imported crude oil, and to establish a threshold such that the dependence on foreign oil does not exceed 70%, in order to avoid risks to industrial security resulting from excessive reliance on imported crude oil. Strengthen top-level planning to ensure the safe and stable supply of crude oil. Enhance domestic exploration and development of oil and gas resources to improve supply and security capabilities. Strengthen energy diplomacy to build a diversified oil supply system. Improve the diversified oil reserve system to enhance the ability to respond to risks. Promote diversification of raw materials used by refineries to reduce raw material costs. Advance a diversified energy strategy to fundamentally alleviate the pressure caused by domestic crude oil shortages. Establish a sustainable, stable, and low-cost supply and security system for crude oil to facilitate the sustainable development of the refining industry. Fully consider the environment’s carrying capacity while continuing to adjust and optimize the layout of refineries. During the 12th Five-Year Plan period, refining capacities along the Yangtze River and in the southwestern economic zone were enhanced, further optimizing the national refining layout. Building upon the original “three circles and two belts” model, a new pattern emerged featuring three major refining clusters around the Bohai Rim, the Yangtze River Delta, and the Pearl River Delta, as well as refining industrial belts in the Northeast, Northwest, and along the Yangtze River—collectively forming a “three circles and three belts” structure for the refining industry. Full consideration should be given to environmental carrying capacity when continuing to adjust and optimize the layout of the refining industry. The environmental carrying capacity must be taken into account in the planning of the refining industry’s distribution. Coastal areas boast advantages such as low costs for processing imported resources, great market potential, and relatively high environmental carrying capacity. On the premise of giving equal importance to environmental protection and governance, moderate development can be pursued in certain inland regions. It is essential to fully consider both market development needs and the limits of environmental capacity when making decisions; development in such areas must proceed cautiously. In regions where there is an oversupply of petroleum products and limited environmental carrying capacity, further development should be restricted. Efforts should also be made to promote a more intensive industrial layout by establishing world-class petrochemical bases. China should further increase the industrial concentration in its “three circles and three belts” regions, gradually relocating scattered refining enterprises to these petrochemical bases for centralized development. This will give rise to several world-class petrochemical industrial parks, each capable of producing 40–50 million tons of refined oil and 4–5 million tons of olefins and aromatics, along with related downstream industries. Additionally, several petrochemical bases should be established in eligible central and western regions. Accelerate the optimization of the product structure, adapt flexibly to future changes in China’s demand for refined oil and the downward trend in the ratio of diesel to gasoline, properly control the development pace of China’s refining industry, regulate capacity growth, and adjust the ratio of diesel to gasoline produced. The facilities should be located near consumer markets to avoid long-distance transportation of petroleum products, even back-and-forth shipments; investment in the construction of pipelines for refined oil products should be increased to reduce the burden on land and water transportation, thereby lowering transportation costs. Faced with the expectation of a shrinking export market for refined oil products in the Asia-Pacific region, it is difficult for China’s refining industry to adopt a development model characterized by large-scale imports and exports. Yet, under the pressure of further expansion of domestic refining capacity, it is still necessary to vigorously explore foreign markets, especially by taking advantage of the current Belt and Road Initiative to go global and pursue internationalization. Promote technological innovation and product structure adjustment for differentiated development. It is necessary to innovate the development models for deep processing in the refining industry, and support integrated enterprises such as those focusing on refining and aromatics, refining and olefins, or refining and lubricants – in order to increase the proportion of clean refined products, high-end chemical products, and high-quality lubricants. Raise the safety and environmental standards in China’s refining industry, and tighten the access regulations for this sector. Adhere to a strategy of larger-scale refineries, and resolutely phase out outdated production capacity. Implement the requirement to eliminate refineries with a capacity of 2 million tons per year or less. Accelerate quality improvements to make products more environmentally friendly. Ensure that the goals for upgrading the quality of refined oil are met on schedule, so as to guarantee an adequate supply of National V standard gasoline by 2017. Ensure the prompt formulation and timely implementation of the China VI standards. Enterprises should adjust the structure of their facilities to achieve cleaner production, strengthen control at the source, and meet the requirements of green manufacturing processes. The Ministry of Environmental Protection has issued the \"Emission Standards for Pollutants in the Petroleum Refining Industry\" (GB31570-2015) to enhance process management, promote green and low-carbon development, ensure that emissions are harmless, improve energy efficiency, and strengthen inspection and management in order to advance energy conservation and emission reduction in the refining industry. By 2017, the comprehensive energy consumption per ton of crude oil processed was reduced to 83 kg of standard coal per ton (equivalent to 58 kg of standard oil per ton), a 9.8% decrease compared to 2012. Accelerate the development of clean production technologies, encourage the diversification of resources as well as the advancement of integrated oil and coal conversion technologies, in order to achieve coupled development and efficient utilization of energy and resources. Speed up the development of technologies for the efficient utilization of heavy oil resources; focusing on the efficient transformation of such resources, one approach is to establish catalytic cracking processes with a high proportion of slag incorporation and low emissions, thereby replacing part of the coking capacity ； Second, leverage existing or newly built coal-to-hydrogen plants to obtain low-cost hydrogen resources ； Third is the adjustment of the heavy oil processing structure, focused on the introduction of fluidized bed and slurry bed residue hydrogenation technologies, in order to promote the development of indigenous fluidized bed residue hydrogenation technologies. Develop and apply catalytic diesel conversion technologies to reduce the diesel-gasoline ratio. Continuously improve the efficiency of these technologies, decrease energy and hydrogen consumption, and convert catalytic diesel components into gasoline components and light aromatics. Develop technologies for the comprehensive utilization of by-products to enhance the value of resources, and advance utilization technologies for light hydrocarbon resources such as ionic acid alkylation, solid acid alkylation, butane dehydrogenation, and isomerization, in order to produce clean petroleum products and downstream chemicals. Promoting the practice and application of the concept of \"molecular refining\" involves understanding the petroleum processing process at the molecular level, accurately predicting the properties of products, optimizing processes and manufacturing procedures, enabling molecular-level utilization, enhancing the value of each molecule, and producing high-value-added products. Deepen reforms in the refining industry, strengthen and improve industry regulation to foster orderly market competition. Deepen reforms in the administrative approval system for refining activities, enhance the planning orientation of industry regulation, and simplify approval processes. “Energy Development Strategy Action Plan (2014–2020)” – November 2014; “Planning Scheme for the Petrochemical Industry” – Document No. Fa Gai Chan Ye 2208, September 2014. Accelerate the marketization of refined oil products and promote mixed-ownership models... Environmental policies and standards play a role in regulating industry development. Under certain conditions, restrictions on crude oil import and use by refineries can be lifted (Document No. 83, Fa Gai Yun Hong 253). Carry out in-depth reforms of the refined oil pricing mechanism to promote orderly market competition. Reform this pricing mechanism to align it more closely with international standards, further refine it, and adjust the consumption tax on refined oil products. Consider lifting price controls on refined oil products at an appropriate time. Use differentiated fiscal and tax policies to promote improvements in oil product quality. Address the issues associated with monopolistic business practices, regulate and guide the development of local refineries. Strengthen fiscal and tax management and leverage market mechanisms for resource allocation. Further improve the fiscal and tax policies related to the refining industry and implement reforms to the consumption tax system. The current system, which imposes a consumption tax on refined oil products based on volume at the production stage and uses an embedded-tax approach, leads to double taxation, which hinders the healthy development of the refining industry. Moreover, the consumption tax does not fully reach consumers. It is recommended to shift the consumption tax on refined oil from being levied at the production stage to the consumption stage. It is recommended that the consumption tax system be changed to one in which the revenue is shared between the central and local governments. Consumption tax rates should be adjusted reasonably based on market conditions, with differentiated rates for gasoline and diesel. Reforms within the refining industry should be deepened, and the development of enterprises with diverse ownership structures should be promoted. Further efforts should be made to consolidate and restructure large enterprises, so as to enhance the competitiveness of local enterprises and address overcapacity issues, thereby creating enterprise groups with competitive advantages. The integration of the Internet with the refining industry should also be promoted, along with the development of industry alliances. Support should be provided for these alliances, and through industrial cooperation and industry self-regulation mechanisms, the overall level and governance capabilities of the industry can be improved, thereby unleashing the potential of diverse ownership structures. http://mmbiz.qpic.cn/mmbiz/BOia8ye2E2miaIgKiaolVg3mo05cYrJrEz8OxCIav1MxZtupQZUCg57PXVbq6tqu9xNsZEgyOfRA1s35Arw4IG55Q/0?wx_fmt=png Reforms in the refining industry should be deepened, and the strengths of mixed-ownership economies should be utilized. Cooperation should be intensified, with joint ventures established to promote optimal regional development. Large state-owned enterprises should separate certain operations related to downstream chemical manufacturing or specific production processes, thereby creating a group of specialized enterprises centered around these state-owned refining companies. This will help to form integrated industrial chains and foster common development in the downstream markets. By introducing a diversified equity structure and unleashing the vitality of diverse forms of ownership, it is possible to gradually guide the state-owned economy out of areas involving general competition, allow the non-state-owned economy to leverage its competitive advantages, and thus promote local economic development. By leveraging local symbiotic markets, it is possible to recreate competitive advantages in terms of location and enhance a company’s own competitiveness. As key players in regional economic development, such companies need to further change their mindset, shifting from simply selling products in the market to expanding their industrial chains, thereby achieving an upgrade and transformation of their value chains. Compiled by the Petroleum and Chemical Industry Planning Institute for the 2016 National Exchange Conference on Advanced Technologies in the Refining and Chemical Industry