China’s refining sector is set to lead the world with respect to the addition of new hydrocracking capacity within the next four years.
In a recent report, Global Data Energy said its analysis of planned hydrocracker showed that China accounted for the largest share of the 10 largest hydrocrackers slated for construction between 2018 and 2022. No less than five of these units, with a combined capacity of more than 625,000 bpd, will be built in China.
Topping the list is the hydrocracker that Zhejiang Petrochemical intends to bring on stream later this year at its refinery on Dayushan Island. This unit, the largest due to be completed in any country between 2018 and 2022, will be able to handle 232,000 bpd of feedstock. It will be part of a refining complex that Zhejiang Petrochemical is building for a cost of US$23.5 billion.
The next largest hydrocracker in China will be part of the Dalian (III) refinery. Hengli Petrochemical (Dalian), the operator of the oil-processing plant, has said the unit will be capable of handling 116,000 bpd of feedstock.
Chinese major Sinopec has said it intends to bring a hydrocracking unit online at the Manila refinery in 2024. Like the Dalian (III) facility, the hydrocracker will have a capacity of 116,000 bpd. Together, these two units are tied for fourth place on Global Data Energy’s list.
Following in fifth place is the new hydrocracker at Jieyang refinery, operated by PetroChina PDVSA Guangdong Petrochemical. This unit will have a capacity of 104,000 bpd and will be able to start operations in 2020.
Finally, two Chinese projects have tied for sixth place – Caofeidian (II), operated by Xingtai Risun, and Caofeidian (III), managed by Saudi Aramco. Both of these facilities will have a capacity of 87,000 bpd and will begin operating in 2022.
Trends and demand
The construction plans highlight several trends in the Chinese energy sector.
First, it is in line with a long-standing trend. China’s hydrocracking capacity has skyrocketed over the last two decades. As of the end of 1999, the country’s refineries had a combined hydrocracking capacity of 199,000 bpd. But by 2011, total capacity had climbed above 1 million bpd. And now the figure is set to rise by a total of 626,000 bpd over the next four years.
Secondly, refinery operators’ interest in large hydrocracking units makes sense, in light of the continuing growth in Chinese demand for light petroleum products. Hydrocrackers will allow refiners to convert heavier distillate fractions into lighter fuels such as gasoline, diesel and jet fuel. As such, they will help China produce enough gasoline and diesel to accommodate its rapidly expanding fleet of civilian automobiles.
The teapot factor
Meanwhile, the list of large hydrocracker construction projects is also notable in that it includes several independent refiners.
Historically, China’s small oil-processing plants, widely known as teapots, have taken a back seat to large state-owned majors such as Sinopec and China National Petroleum Corp. (CNPC). But nearly three years ago, officials in Beijing loosened restrictions on direct oil imports. Teapots, which had only been able to obtain foreign oil through deals with state-owned majors, took advantage of this policy shift and began to buy foreign feedstock. In turn, their capacity utilisation and production levels have risen significantly.
Small refiners have benefitted financially and logistically from the ability to import oil without the help of a larger company. But the change has also highlighted some of their disadvantages, including their small size and their relative lack of secondary processing capacities.
Nevertheless, some teapots are working to expand their operations and to build up their secondary processing capacity. The hydrocracker construction programmes will help them achieve these goals by increasing their overall production and by giving them the ability to crack heavier fractions into lighter fuels.