Its not just because Chinas refining capacity is getting stronger. In fact, due to insufficient demand, oil giants have to shut down some European and American refineries that are still competitive in the industry.
Take Royal Dutch Shell, the worlds third largest oil giant. In November, they closed the Convention refinery in Louisiana.
This is a large refinery with 700 workers, which can convert a variety of crude oil into high value-added fuels. In 1967, when it came into operation, Chinas refining capacity was only one-third of that of the United States.
But now shell is unable to find a buyer for the plant, and the depressed oil market has forced shell to slash its refining capacity.
Novel coronavirus pneumonia is the only two iceberg in the world. The global energy system is undergoing profound changes, according to Bloomberg. Oil exporting countries are selling more and more crude oil to Asia and less to long-term customers in North America and Europe. In the next few years, Chinas refining capacity will increase by 1 million barrels a day or more, said an industry companys refining director. In a year or two, China may overtake the United States.
Large scale petrochemical project base in Zhejiang Province photo source: Zhejiang Free Trade Zone
Two major oil derivatives, fuel and plastics, have contributed to this situation.
Chinas diesel and gasoline consumption has grown rapidly since the turn of the century, according to the news agency. To meet rising demand, China has nearly tripled its refining capacity. According to the prediction of China Institute of Petroleum Economics and technology, Chinas comprehensive crude oil processing capacity will increase from 17.5 million barrels per day to 20 million barrels, or 1 billion tons, by 2025.
China is becoming an increasingly powerful force in the international gasoline, diesel and other fuel markets as Chinese refineries continue to increase capacity.
Even the old factories in other Asian countries and regions also feel the pressure. Shell, for example, announced in November that it would halve the capacity of its Singapore refinery.
Chinas (black line) refining capacity has surpassed Europes (blue line) and is about to overtake the United States (red line) chart source: Bloomberg
The demand for plastics also increases the demand for petrochemical raw materials processing. According to wood Mackenzie, an industry consultancy, more than half of the refining capacity put into production between 2019 and 2027 will come from Asia, with 70% to 80% of which will be mainly used in plastics.
In addition to China, India will increase its refining capacity by more than half to 8 million B / D by 2025. The Middle East, a big oil producer, is also investing heavily in opening new plants. At least two projects with a daily output of more than 1 million barrels will be put into operation next year.
In contrast, refineries in the United States and Europe are struggling to cope with the deeper economic crisis, and a series of laws encouraging the promotion of biofuels have made it worse for American refiners. In the long run, the energy consumption structure without fossil fuels makes the demand prospect of oil market dim.
Hedi grati, an industry researcher, said about two-thirds of European refiners could not pay back on sales of fuel oil production. Europe still needs to cut its capacity by another 1.7 million barrels a day in five years.
However, the report also pointed out that although refining capacity in China, India and the Middle East will increase, the demand in the global oil market may take years to fully recover from the damage caused by the new outbreak.
Even China faces the problem of capacity growth exceeding demand growth. Chinas excess supply of petroleum products could reach 1.4m barrels a day by 2025, according to CNPC. New refineries are being built in China, but demand growth in China is likely to peak in 2025, slowing down as the country begins its long-term transition to carbon neutrality. In an environment where there is already enough refining capacity in the world, if capacity is increased in one place, some facilities need to be closed in another to maintain balance. Rob Smith, head of ihsmarkit, a data network, said: the long-term, slow market adjustment that people had expected turned into a sharp shock. One industry person predicts that the refining industry is likely to be in this environment for at least the next four to five years. This article is the exclusive manuscript of the observer website. It is not allowed to reprint without authorization. Source: observer.com editor in charge: Zhong Qiming_ NF5619
Even China faces the problem of capacity growth exceeding demand growth. Chinas excess supply of petroleum products could reach 1.4m barrels a day by 2025, according to CNPC. New refineries are being built in China, but demand growth in China is likely to peak in 2025, slowing down as the country begins its long-term transition to carbon neutrality.
One industry person predicts that the refining industry is likely to be in this environment for at least the next four to five years.
This article is the exclusive manuscript of the observer website. It is not allowed to reprint without authorization.