The rise of China’s mega-refineries was always going to make life tougher for their competitors across Asia. But the fallout from Covid-19 is hastening the impact and accelerating consolidation across the region. A frenzy of refinery building in China is set to make the nation the world’s largest crude processor this year. At the same time, a drive to de-carbonize Asia’s biggest economy means demand for fuels like diesel and gasoline will decline, potentially leading to more exports from the new facilities.
That’s putting pressure on the traditionally more export-focused plants in South Korea, Singapore and Taiwan that are trying to cope with depressed demand due to the pandemic and the longer-term transition away from fossil fuels. Refineries in places like Australia and the Philippines that lack the size and sophistication to make them competitive are closing altogether.
“China is indeed set to dominate new refining additions and product exports are likely to increase” and will compete quite aggressively with output from other Asian refiners, said Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies. Much will depend on how quickly Beijing liberalizes trade and prices including domestic export quotas, she said.
China’s refining capacity has nearly tripled since the turn of the millennium and the International Energy Agency forecasts it will overtake the U.S. this year. Crude processing will climb to 1 billion tons a year, or 20 million barrels per day, by 2025 from 17.5 million barrels at the end of 2020, according to China National Petroleum Corp.’s Economics & Technology Research Institute.