This is the third of a five-part special report on China’s small independent refiners. Our team conducted an extensive tour of the Shandong-based refining sector to gauge the direction it is headed and what it means for global oil markets. Shandong’s independents have come a long way, having driven China’s and global oil demand growth, but they also face new challenges as the country’s overall refining sector evolves.
Oil markets have not seen the last of Shandong’s independent refiners. They have a tenacious history of survival, and will battle it out both in the domestic and international markets as China’s refining overcapacity is increasingly exported. Traders expect China’s growing product exports to underpin gasoline and gasoil trade flows in Asia, much like the emergence of refining hubs in Singapore and India did in the past.
China has gone from being a net fuel importer to one of the world’s top ten refined product exporters in 2018. Its total gasoil, gasoline and jet fuel exports rose 277% to 46.08 million mt (925,000 b/d) between 2012 and 2018, data from General Administration of Customs showed. For 2019, S&P Global Platts Analytics expects exports to reach an estimated 54.5 million mt (1.09 million b/d).
That’s nearly a tenth of its crude imports, and roughly as much as Saudi Arabia’s or India’s exports, and far more than Japan — all regions where refineries cater to export markets. S&P Global Platts expects China to add around 900,000 b/d of new refining capacity in 2019, taking total capacity to about 17.38 million b/d, with another 1.82 million b/d under construction.
China’s current CDU capacity has equaled that of the US, the world’s largest, at 18.2 million b/d, according to Platts Analytics. As domestic fuel demand weakens on the back of a slowing economy, pollution control measures and falling vehicle sales, the only outlet for the surplus is exports.