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China’s build-up of oil refining capacity is threatening the viability of other Asian refiners as the country is about to become the world’s largest refiner this year amid still depressed demand for fuels.
Bloomberg reports that the refining capacity of the country has increased threefold over the last 20 years and is on track to exceed the refining capacity of the United States this year as more new refineries come online.
China had 1.4 million bpd in new refining capacity under construction as of November last year. This amount, distributed among four refinery projects, will add to the more than 1 million bpd in new capacity that has already been added since 2019.
Despite worries that this capacity will end up unused, especially with oil demand likely to stop growing in the observable future, China recently gave the go-ahead to yet another refining project: the Yulong refinery and petrochemicals complex in Shandong, the center of China’s independent refining industry.
With a capacity of 400,000 bpd, the Yulong facility will cost some $20 billion.
This year will see the addition of another two projects: one, the property of CNPC, and the other of the Shengdong Group. The two projects will boost China’s total capacity by another 36 million tons of crude—more than 700,000 bpd based on a conversion factor of 7.33 barrels in a ton of crude.
Besides the concern that much of this capacity may turn out to be excessive, there is also a real danger that China’s increased oil product export capacity is stifling regional competition, the Bloomberg report notes. South Korean, Taiwanese, and Singaporean facilities are already struggling because of the pandemic-related demand depression, and more fuels and other oil derivatives coming from China are not helping. Some refineries in Australia and the Philippines are outright shutting down as they become unable to compete.
