rongsheng refinery capacity quotation

SINGAPORE, Oct 14 (Reuters) - Rongsheng Petrochemical, the trading arm of Chinese private refiner Zhejiang Petrochemical, has bought at least 5 million barrels of crude for delivery in December and January next year in preparation for starting a new crude unit by year-end, five trade sources said on Wednesday.

Rongsheng bought at least 3.5 million barrels of Upper Zakum crude from the United Arab Emirates and 1.5 million barrels of al-Shaheen crude from Qatar via a tender that closed on Tuesday, the sources said.

Rongsheng’s purchase helped absorbed some of the unsold supplies from last month as the company did not purchase any spot crude in past two months, the sources said.

Zhejiang Petrochemical plans to start trial runs at one of two new crude distillation units (CDUs) in the second phase of its refinery-petrochemical complex in east China’s Zhoushan by the end of this year, a company official told Reuters. Each CDU has a capacity of 200,000 barrels per day (bpd).

Zhejiang Petrochemical started up the first phase of its complex which includes a 400,000-bpd refinery and a 1.2 million tonne-per-year ethylene plant at the end of 2019. (Reporting by Florence Tan and Chen Aizhu, editing by Louise Heavens and Christian Schmollinger)

BEIJING, Aug 14 (Reuters) - Rongsheng Petrochemical , the listed arm of a major shareholder in one of China’s biggest private oil refineries, expects demand for energy and chemical products to return to normal in the country in the second half of this year.

Rongsheng expects to start trial operations of the second phase of the refining project, adding another 400,000 bpd of refining capacity and 1.4 million tonnes of ethylene production capacity in the fourth quarter of 2020.

“We expect the effects of the coronavirus pandemic on energy and chemicals to have basically faded in spite of the possibility of new waves of outbreak,” said Quan Weiying, board secretary of Rongsheng, in response to Reuters questions in an online briefing.

But Li Shuirong, president of Rongsheng, told the briefing that it was still in the process of applying for an export quota and would adjust production based on market demand. (Reporting by Muyu Xu and Chen Aizhu; Editing by Jacqueline Wong)

With the new issue, ZPC, China"s largest refiner with 800,000 barrels per day crude processing capacity, has obtained 40 million tonnes of quotas for the year, fully matching its refining capacity.

In a move to encourage higher refinery production to help a struggling economy, authorities earlier this month issued a small portion of the first-batch crude oil import quotas for 2023, months ahead of the usual timeline.

This year, China is expected to overtake the United States as the world’s largest oil refining country.[1] Although China’s bloated and fragmented crude oil refining sector has undergone major changes over the past decade, it remains saddled with overcapacity.[2]

Privately owned unaffiliated refineries, known as “teapots,”[3] mainly clustered in Shandong province, have been at the center of Beijing’s longtime struggle to rein in surplus refining capacity and, more recently, to cut carbon emissions. A year ago, Beijing launched its latest attempt to shutter outdated and inefficient teapots — an effort that coincides with the emergence of a new generation of independent players that are building and operating fully integrated mega-petrochemical complexes.[4]

China’s “teapot” refineries[5] play a significant role in refining oil and account for a fifth of Chinese crude imports.[6] Historically, teapots conducted most of their business with China’s major state-owned companies, buying crude oil from and selling much of their output to them after processing it into gasoline and diesel. Though operating in the shadows of China’s giant national oil companies (NOCs),[7] teapots served as valuable swing producers — their surplus capacity called on in times of tight markets.

Four years later, the NDRC adopted a different approach, awarding licenses and quotas to teapot refiners to import crude oil and granting approval to export refined products in exchange for reducing excess capacity, either upgrading or removing outdated facilities, and building oil storage facilities.[10] But this partial liberalization of the refining sector did not go exactly according to plan. Swelling with new sources of feedstock that catapulted China into the position of the world’s largest oil importer, teapots increased their production of refined fuels and, benefiting from greater processing flexibility and low labor costs undercut larger state rivals and doubled their market share.[11]

Meanwhile, as teapots expanded their operations, they took on massive debt, flouted environmental rules, and exploited taxation loopholes.[12] Of the refineries that managed to meet targets to cut capacity, some did so by double counting or reporting reductions in units that had been idled.[13] And when, reversing course, Beijing revoked the export quotas allotted to teapots and mandated that products be sold via state-owned companies, it trapped their output in China, contributing to the domestic fuel glut.

2021 marked the start of the central government’s latest effort to consolidate and tighten supervision over the refining sector and to cap China’s overall refining capacity.[14] Besides imposing a hefty tax on imports of blending fuels, Beijing has instituted stricter tax and environmental enforcement[15] measures including: performing refinery audits and inspections;[16] conducting investigations of alleged irregular activities such as tax evasion and illegal resale of crude oil imports;[17] and imposing tighter quotas for oil product exports as China’s decarbonization efforts advance.[18]

The politics surrounding this new class of greenfield mega-refineries is important, as is their geographical distribution. Beijing’s reform strategy is focused on reducing the country’s petrochemical imports and growing its high value-added chemical business while capping crude processing capacity. The push by Beijing in this direction has been conducive to the development of privately-led mega refining and petrochemical projects, which local officials have welcomed and staunchly supported.[20]

Yet, of the three most recent major additions to China’s greenfield refinery landscape, none are in Shandong province, home to a little over half the country’s independent refining capacity. Hengli’s Changxing integrated petrochemical complex is situated in Liaoning, Zhejiang’s (ZPC) Zhoushan facility in Zhejiang, and Shenghong’s Lianyungang plant in Jiangsu.[21]

As China’s independent oil refining hub, Shandong is the bellwether for the rationalization of the country’s refinery sector. Over the years, Shandong’s teapots benefited from favorable policies such as access to cheap land and support from a local government that grew reliant on the industry for jobs and contributions to economic growth.[22] For this reason, Shandong officials had resisted strictly implementing Beijing’s directives to cull teapot refiners and turned a blind eye to practices that ensured their survival.

But with the start-up of advanced liquids-to-chemicals complexes in neighboring provinces, Shandong’s competitiveness has diminished.[23] And with pressure mounting to find new drivers for the provincial economy, Shandong officials have put in play a plan aimed at shuttering smaller capacity plants and thus clearing the way for a large-scale private sector-led refining and petrochemical complex on Yulong Island, whose construction is well underway.[24] They have also been developing compensation and worker relocation packages to cushion the impact of planned plant closures, while obtaining letters of guarantee from independent refiners pledging that they will neither resell their crude import quotas nor try to purchase such allocations.[25]

To be sure, the number of Shandong’s independent refiners is shrinking and their composition within the province and across the country is changing — with some smaller-scale units facing closure and others (e.g., Shandong Haike Group, Shandong Shouguang Luqing Petrochemical Corp, and Shandong Chambroad Group) pursuing efforts to diversify their sources of revenue by moving up the value chain. But make no mistake: China’s teapots still account for a third of China’s total refining capacity and a fifth of the country’s crude oil imports. They continue to employ creative defensive measures in the face of government and market pressures, have partnered with state-owned companies, and are deeply integrated with crucial industries downstream.[26] They are consummate survivors in a key sector that continues to evolve — and they remain too important to be driven out of the domestic market or allowed to fail.

In 2016, during the period of frenzied post-licensing crude oil importing by Chinese independents, Saudi Arabia began targeting teapots on the spot market, as did Kuwait. Iran also joined the fray, with the National Iranian Oil Company (NIOC) operating through an independent trader Trafigura to sell cargoes to Chinese independents.[27] Since then, the coming online of major new greenfield refineries such as Rongsheng ZPC and Hengli Changxing, and Shenghong, which are designed to operate using medium-sour crude, have led Middle East producers to pursue long-term supply contracts with private Chinese refiners. In 2021, the combined share of crude shipments from Saudi Arabia, UAE, Oman, and Kuwait to China’s independent refiners accounted for 32.5%, an increase of more than 8% over the previous year.[28] This is a trend that Beijing seems intent on supporting, as some bigger, more sophisticated private refiners whose business strategy aligns with President Xi’s vision have started to receive tax benefits or permissions to import larger volumes of crude directly from major producers such as Saudi Arabia.[29]

The shift in Saudi Aramco’s market strategy to focus on customer diversification has paid off in the form of valuable supply relationships with Chinese independents. And Aramco’s efforts to expand its presence in the Chinese refining market and lock in demand have dovetailed neatly with the development of China’s new greenfield refineries.[30] Over the past several years, Aramco has collaborated with both state-owned and independent refiners to develop integrated liquids-to-chemicals complexes in China. In 2018, following on the heels of an oil supply agreement, Aramco purchased a 9% stake in ZPC’s Zhoushan integrated refinery. In March of this year, Saudi Aramco and its joint venture partners, NORINCO Group and Panjin Sincen, made a final investment decision (FID) to develop a major liquids-to-chemicals facility in northeast China.[31] Also in March, Aramco and state-owned Sinopec agreed to conduct a feasibility study aimed at assessing capacity expansion of the Fujian Refining and Petrochemical Co. Ltd.’s integrated refining and chemical production complex.[32]

Miserable Chinese refinery margins will constrain runs among integrated refineries, incl major firms like Hengli & Rongsheng, whose profits fell by 90% y/y in Q3 22.expects low margins to persist into Q2 2023 -> cautious crude purchases.

China concentrates most of the refinery projects scheduled to start operation between 2022 and 2023 in the Asian and Middle East region. In terms of refining capacity, Kuwait"s Al Zour refinery is estimated to be the largest project, at 615,000 barrels per day. This is followed by the Jieyang and Rongsheng refineries, both located in China and each with a refining capacity of 400 thousand barrels daily. Meanwhile, the refining capacity worldwide is forecast to expand by one million barrels per day in 2022, with an additional expansion of 1.6 million barrels daily in the following year.Read moreRefining projects scheduled to begin operation in Asia and the Middle East in 2022 and 2023, by refining capacity(in 1,000 barrels per day)CharacteristicRefining capacity in thousand barrels per day--

EIA. (August 2, 2022). Refining projects scheduled to begin operation in Asia and the Middle East in 2022 and 2023, by refining capacity (in 1,000 barrels per day) [Graph]. In Statista. Retrieved February 05, 2023, from https://www.statista.com/statistics/1327341/major-refining-projects-scheduled-in-asia-and-the-middle-east/

EIA. "Refining projects scheduled to begin operation in Asia and the Middle East in 2022 and 2023, by refining capacity (in 1,000 barrels per day)." Chart. August 2, 2022. Statista. Accessed February 05, 2023. https://www.statista.com/statistics/1327341/major-refining-projects-scheduled-in-asia-and-the-middle-east/

EIA. (2022). Refining projects scheduled to begin operation in Asia and the Middle East in 2022 and 2023, by refining capacity (in 1,000 barrels per day). Statista. Statista Inc.. Accessed: February 05, 2023. https://www.statista.com/statistics/1327341/major-refining-projects-scheduled-in-asia-and-the-middle-east/

EIA. "Refining Projects Scheduled to Begin Operation in Asia and The Middle East in 2022 and 2023, by Refining Capacity (in 1,000 Barrels per Day)." Statista, Statista Inc., 2 Aug 2022, https://www.statista.com/statistics/1327341/major-refining-projects-scheduled-in-asia-and-the-middle-east/

EIA, Refining projects scheduled to begin operation in Asia and the Middle East in 2022 and 2023, by refining capacity (in 1,000 barrels per day) Statista, https://www.statista.com/statistics/1327341/major-refining-projects-scheduled-in-asia-and-the-middle-east/ (last visited February 05, 2023)

Refining projects scheduled to begin operation in Asia and the Middle East in 2022 and 2023, by refining capacity (in 1,000 barrels per day) [Graph], EIA, August 2, 2022. [Online]. Available: https://www.statista.com/statistics/1327341/major-refining-projects-scheduled-in-asia-and-the-middle-east/

Gasoline consumption is expected to pick up while jet fuel demand may take longer to recover, Chen Hongbing, deputy general manager at Rongsheng Petrochemical told a forum at the 38th Annual Asia Pacific Petroleum Conference (APPEC). Financial Post Top Stories

Diesel demand at the world’s top crude importer and No. 2 oil consumer has been robust this year, leading to low inventories, said the executive from China’s largest private refiner by capacity. (Reporting by Chen Aizhu, Muyu Xu, Emily Chow and Florence Tan; Editing by Jacqueline Wong)

China"s private refiner Zhejiang Petroleum & Chemical is set to start trial runs at its second 200,000 b/d crude distillation unit at the 400,000 b/d phase 2 refinery by the end of March, a source with close knowledge about the matter told S&P Global Platts March 9.

"The company targets to commence the phase II project this year, and run both the two phases at above 100% of their capacity, which will lift crude demand in 2021," the source said.

ZPC cracked 23 million mt of crude in 2020, according the the source. Platts data showed that the utilization rate of its phase 1 refinery hit as high as 130% in a few months last year.

Started construction in the second half of 2019, units of the Yuan 82.9 billion ($12.74 billion) phase 2 refinery almost mirror those in phase 1, which has two CDUs of 200,000 b/d each. But phase 1 has one 1.4 million mt/year ethylene unit while phase 2 plans to double the capacity with two ethylene units.

ZPC currently holds about 6 million cu m (37.74 million barrels) in crude storage tanks, equivalent to 47 days of the two plants" consumption if they run at 100% capacity.

With the entire phase 2 project online, ZPC expects to lift its combined petrochemicals product yield to 71% from 65% for the phase 1 refinery, according to the source.

Zhejiang Petroleum, a joint venture between ZPC"s parent company Rongsheng Petrochemical and Zhejiang Energy Group, planned to build 700 gas stations in Zhejiang province by end-2022 as domestic retail outlets of ZPC.

Established in 2015, ZPC is a JV between textile companies Rongsheng Petrochemical, which owns 51%, Tongkun Group, at 20%, as well as chemicals company Juhua Group, also 20%. The rest 9% stake was reported to have transferred to Saudi Aramco from the Zhejiang provincial government. But there has been no update since the agreement was signed in October 2018.

RONGSHENG PETROCHEMICAL CO., LTD. is a China-based company principally engaged in the research, development, manufacture and distribution of chemicals and chemical fibers. The Company’s main products include aromatics, phosphotungstic acid (PTA), polyethylene terephthalate (PET) chips, terylene pre-oriented yarns (POYs), terylene fully drawn yarns (FDYs) and terylene draw textured yarns (DTYs), among others. The Company distributes its products in domestic market and to...More