rongsheng refinery capacity factory

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)

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.

Abu Dhabi National Oil Company (ADNOC) has signed a broad framework agreement with China’s Rongsheng Petrochemical to explore domestic and international growth opportunities in support of ADNOC’s 2030 growth strategy.

The companies will examine opportunities in the sale of refined products from ADNOC to Rongsheng, downstream investment opportunities in both China and the United Arab Emirates (UAE) and the supply of liquified natural gas (LNG) to Rongsheng.

Under the terms of the deal, the companies will also study chances to increasing the volume and variety of refined product sales to Rongsheng as well as ADNOC’s participation as the China firm’s strategic partner in refinery and petrochemical projects. This could include an investment in Rongsheng’s downstream complex.

In return, Rongsheng will also look at investing in ADNOC’s downstream industrial ecosystem in Ruwais, UAE, including a proposed gasoline-to-aromatics plant as well as reviewing the potential for ADNOC to supply LNG to Rongsheng for use within its own complexes in China.

Rongsheng’s chairman Li Shuirong added that the cooperation will ensure that its project, which will have a refining capacity of up to 1 million bbl/day of crude oil, has adequate supplies of feedstock.

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]

(Reuters) Chinese conglomerate Zhejiang Rongsheng Holding Group plans to double capacity of a joint venture refining project to 800 Mbpd in 2020, two years after the first phase starts up, senior company officials said Thursday.

The project, a venture among private companies led by Rongsheng, is planning to start up the 400 Mbpd first phase in 2018, aiming to meet the group"s requirements for petrochemical feedstocks.

The 400,000 barrels-per-day oil refinery will be accompanied by two ethylene plants. It will also include an oleflex propane dehydrogenation unit, which is expected to produce 600,000t of polymer-grade propylene.

The integrated refinery and petrochemical project is expected to produce more than 20 petrochemical products such as gasoline, diesel, jet coal, paraxylene, high-end polyolefin, and polycarbonate. Aromatics for plastic resins, films, and fibers will be produced in the first phase, using Honeywell"s UOP technology.

The second phase of the project is expected to double the plant’s processing capacity to 40Mtpa. It will produce 4.8Mtpa of paraxylene using a two-train LD Parex aromatics complex.

The refinery will utilize three UOP Unicracking process units to convert vacuum gas oil and distillate into petrochemical feedstock. The phase will also include production facilities for aromatics and blend stocks along with normal butane.

The United States has the most complex and efficient refining industry in the world, but we also have less refining capacity than we used to. After more than two decades of growth in which the United States became the world’s largest refiner by volume, our industry has contracted. We’ve lost 1.1 million barrels of daily refining capacity over the course of the global pandemic with at least seven facilities shuttering, closing units or beginning the transition away from petroleum processing.

With a global energy crunch underway, much focus has been placed on crude oil supply and demand. And while this is the primary driver of our current price challenges, it’s not the only factor. Refining matters too. Crude oil has no utilitarian value until it runs through a refinery and gets processed into fuels like wholesale gasoline, diesel and jet fuel. Because of this, it’s not an overstatement to say that energy security requires a strong refining sector.

Where the issue of refining capacity is concerned, it’s important to understand what refining capacity is, why we’ve lost capacity in the United States and how policies can advance the competitiveness of our refineries in the global market. Let’s take a look:

How much refining capacity does the United States have?At the start of 2020, the United States had the largest refining industry in the world by a stretch, with 135 operable petroleum refineries and total refining capacity of 19 million barrels per day. Today, we have 128 operable refineries with total crude distillation capacity of 17.9 million barrels per day—a loss of 1.1 million barrels.

In this same period of time, the world lost a total of 3.3 million barrels of daily refining capacity. Roughly 1/3 of these losses occurred in the United States. With this realignment, and planned refinery openings and capacity expansions in Asia, trade press reports suggest China will overtake the United States as the country with the most refining capacity by year’s end.

Is COVID the only reason why the U.S. is losing refining capacity?No. A combination of factors is responsible for the United States’ loss of refining capacity. Choices to convert or shutter refineries are made very carefully—factoring in present and projected future fuel demand, the political environment as well as facility locations and their individual market access. Political and financial pressure to move away from petroleum derived fuels, costs associated with federal and state regulatory compliance and facilities’ singular economic performance all inform these decisions. The sharp drop in fuel demand over the course of the pandemic certainly sped up the timeframe for refining contractions, closures and transitions, but many of these moves were already planned or underway, something Chevron CEO Mike Wirth acknowledged in a recent interview.

Even if that wasn’t the case, reopening a refinery is a major effort. It would require significant lead time to inspect machinery and attain necessary operating permits. Staff would need to be reassembled and/or recruited and trained. And the facilities themselves would need to be reintegrated with supply chains. A hypothetical restart is not a quick-turn project, and the investment cannot be based on short-term data.

How is lost refining capacity affecting fuel prices and production?Less refining capacity means less maximum fuel production globally. As a result of tighter supply, fuel purchasers are willing to pay more for refined products. They have increased bids to buy and secure finished fuel which has pushed prices up throughout the global market.

In regions that have been most affected by refining capacity losses—such as the U.S. West Coast and Mid-Atlantic—the loss of local petroleum fuel production is contributing to higher prices and affecting regional demand for imports of gasoline, diesel and jet fuel from the global market. Because of infrastructure limitations and an uncompetitive shipping environment, economic access to domestic crude oil and refined products is limited.

Even with less capacity, United States refiners are working around the clock to produce fuel for consumers. Our refining sector is unmatched in terms of utilization. Nationally, and even with some regions undergoing planned facility maintenance, American refiners are running at 93% capacity. Along the Gulf Coast, utilization is 95%, and on the East Coast, 98%.

What does lost capacity say about the future of liquid fuels?In much of the world, demand for liquid fuels is almost back to pre-pandemic levels. Refining capacity is not. This mismatch has created a shortfall in refined product that has been exacerbated by the sudden decrease in oil and refined product from Russia and China’s decision to stop contributing fuel to the global market. New capacity is coming, though it is intended to satisfy demand growth in Asia, the Middle East and Africa, rather than replace what’s recently been lost. In these markets, roughly three million barrels of new daily capacity will come online by the end of 2022, with an additional 1.3 million barrels per day to follow in 2023.

Capacity expansions at existing refineries—rather than new facility construction—are underway in the United States as well, primarily aimed at increasing refinery throughput of U.S. light sweet crude oil.

The U.S. refining sector has experienced significant capacity losses over the last few years for reasons beyond COVID, though the pandemic certainly did fast-track decisions to repurpose or shutter facilities. Restarting those facilities is not an option in most cases as they have already been dismantled, converted or are in the conversion process. In other cases, returning idled capacity to safe operation would be so labor intensive and time consuming that any market impact would be years out.

Refiners remain focused on maximizing the production of fuelsfrom our operable facilities, ensuring that the capacity we do have isrunning efficiently and cost effectively to supply U.S. consumersand meet global energy demand.

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.

Saudi Aramco today signed three Memoranda of Understanding (MoUs) aimed at expanding its downstream presence in the Zhejiang province, one of the most developed regions in China. The company aims to acquire a 9% stake in Zhejiang Petrochemical’s 800,000 barrels per day integrated refinery and petrochemical complex, located in the city of Zhoushan.

The first agreement was signed with the Zhoushan government to acquire its 9% stake in the project. The second agreement was signed with Rongsheng Petrochemical, Juhua Group, and Tongkun Group, who are the other shareholders of Zhejiang Petrochemical. Saudi Aramco’s involvement in the project will come with a long-term crude supply agreement and the ability to utilize Zhejiang Petrochemical’s large crude oil storage facility to serve its customers in the Asian region.

Phase I of the project will include a newly built 400,000 barrels per day refinery with a 1.4 mmtpa ethylene cracker unit, and a 5.2 mmtpa Aromatics unit. Phase II will see a 400,000 barrels per day refinery expansion, which will include deeper chemical integration than Phase I.

The plant is a direct challenge to China National Petroleum Corp"s (CNPC) Dalian Petrochemical Corp facility, the country"s second-largest oil refinery. That 70-year-old plant has been a cash cow for state-owned CNPC but the aging refinery has come under scrutiny after several accidents.

Meantime, China may raise its oil refining capacity by about 16 percent to 20 million barrels per day (bpd) by around 2023, according to a Reuters tally of announced projects. This will result in a surplus of about 3 million bpd, equal to about one-fifth of Europe"s refining capacity, as fuel demand growth stagnates.

While China"s government has not stated a specific target for closing down the excess capacity, industry executives have raised concerns about the widening glut.

Ethylene capacity will rise by 14 million tonnes a year during the same period, up by 76 percent from the current total estimated production, according to a count of announced projects.

It has a quota to import 20 million tonnes of crude oil a year, about 400,000 bpd and equal to its total refining capacity, the most of any independent refiner.

In addition to its crude distillation capacity, the Hengli complex will have two 3.2-million-tonnes-per-year residue hydrocracking units, and three 3.2 million-tonnes-per-year reforming units.

PetroChina"s Dalian plant has the same crude refining capacity as the Hengli site but its fortunes have turned since a deadly pipeline blast at the oil receiving port in 2010 caused a large spill.

In China, the biggest of these is Rongsheng Petrochemical Co.’s plant on Zhoushan island, near Ningbo. The 800,000 barrel-a-day operation opened in 2019 and will reach full capacity before year-end. An Indian Oil Corp.-led group is planning a gigantic 1.2 million barrels a day oil-to-chemicals complex on the country’s west coast. Saudi Aramco, as part of its strategy to invest downstream in Asia, has or plans to take a stake in both projects.

All told, more than half of the refining capacity that comes on stream from 2019 to 2027 will be added in Asia and around 70% to 80% of this will be plastics-focused, according to industry consultant Wood Mackenzie Ltd. Petrochemicals will account for more than a third of global oil demand growth to 2030 and nearly half through 2050, the International Energy Agency predicts.

“It doesn’t make sense now to operate a standalone refinery or a standalone petrochemicals plant for that matter,” said Sushant Gupta, research director for Asia Pacific refining at WoodMac. Smaller facilities will find the new environment challenging, while there’s also a risk of over-capacity, he said.

The big new projects combined with low oil prices will potentially lead to refinery closures in developed markets over 2021 and 2022, Goldman Sachs Group Inc. said in a note last month. Some 1.2 million barrels a day of Chinese independent refining capacity will shut down over the next few years, while simpler plants in Japan and Australia will also be stressed, according to Gupta.

The new refineries will lead to a glut of capacity in China, according to Michal Meidan, the director of the China Energy Programme at the Oxford Institute for Energy Studies. This is partly due to the coronavirus damping global growth expectations and also as efforts to limit single-use plastics increase, she said.

There are still plenty of integrated refineries in the pipeline, however. The Zhoushan plant may be expanded to 1.2 million barrels a day and there are more facilities planned at Shenghong, Yantai and Caofeidian. China will add about 1.6 million barrels a day of integrated capacity by 2025, WoodMac said.

In addition to what Indian Oil is planning, Reliance Industries Ltd. has invested about $20 billion in recent years to double its petrochemicals production capacity and make refining more efficient. Chairman Mukesh Ambani told shareholders last month that the company had proprietary technology to convert gasoline and diesel into the building blocks to produce plastics.

As the shift in oil demand from Covid-19 turned the tables of regional levels of fuel production and exports, China succeeded in overtaking the USA as the world’s biggest oil refiner in 2020. As China began to ramp up its refining capacity throughout the pandemic, the US Energy Information Administration (EIA) published data showing thatChina processed more crude oil than the U.S.for much of 2020.

Oil refineries across the U.S. have been losing momentum in response to the Covid-19 pandemic. At the end of last year, Royal Dutch Shell Plc ground production at its Convent refinery in Louisiana to a halt. This same facility had 35 times the refining capacity of China when it opened in 1967, showing how dramatically the tables have turned over the past couple of decades.

Oil refineries have also been impeded this year by the severe storm that hit the state of Texas in February. During the storm, oil refining fell to its lowest levels since 2008. This was largely due to frozen pipelines which forced producers to halt activities.Refinery crude runs fell by 2.6 million bpdthroughout the week to 12.2 million bpd.

Meanwhile, in November, China was processing around1.2 million bpd of crude oil. Much of this new refining work was taking place in the new unit at Rongsheng Petrochemical’s giant Zhejiang facility in northeast China.

China is not the only Asian giant to invest in refining over the next decade. Just a few weeks ago,India announced plan to invest $4.5 billion in a Panipat refinery expansionby September 2024. This would increase Panipat’s capacity by two-thirds to 500,000 bpd.

Only slightly behind China, as the world’s third largest oil importer and consumer, India is striving to increase its oil refining capacity by 60 percent to meet the country’s increasing oil demand. This comes as Prime Minister Narendra Modi has pledged to improve India’s manufacturing sector.

State-owned Indian Oil Corporation (IOC) has also announced plans to build a new refinery at Nagapattinam in the southern state of Tamil Naduat a cost of $4.01 billion. The IOC subsidiary Chennai Petroleum Corporation Limited is expected to develop the refinery. The project is aimed at meeting the demand of petroleum products across southern India.

While U.S. refining activities are expected to pick up before the end of the year, a dramatically increased oil refining capacity in China, as well as new projects in India, suggest that the face of the industry could change over the next decade. As oil demand wanes in the U.S. and continues to increase across Asia, many Asian countries will be seeking out refined products from closer to home to meet their needs.

As MRC informed before, TotalEnergies has recently inaugurated the extension of Synova in Normandy, the French leader in recycled polypropylene production. TotalEnergies is therefore doubling its mechanical recycling production capacity for recycled polymers, to meet growing demand for sustainable polymers from customers, such as Automotive Manufacturer (Auto OEM) and the construction industry.