China’s Swelling Oil Refining Capacity Adds to Industry Excess

What’s New: China will add 31.5 million tons of new refining capacity annually starting this year, said Fu Xianshen, vice chairman of the China Petroleum and Chemical Industry Federation, in an online meeting Thursday.

A factory jointly built by Sinopec and Kuwait Petroleum Corp. in Zhanjiang, Guangdong province, which kicked off operations in June, will add 15 million tons, Fu told Caixin. A refining and petrochemical complex owned by state-owned oil major CNOOC in the eastern port city of Ningbo will increase its annual capacity by 6 million tons.

Meanwhile, Sinopec Jingmen Co. expanded its annual capacity by 4.5 million tons, and PetroChina’s Qingyang Oil Refining Co. and Sinochem Quanzhou Petrochemical Co. Ltd. both added 3 million tons to their annual capacity.

The background: These refining capacity increases may further worsen the state of China’s bloated oil industry, which recorded excess capacity of 150 million tons last year, data from CNPC Economics and Technology Research Institute shows.

At the end of 2019, China had annual refining capacity of 860 million tons, and this was expected to expand to 1 billion tons per year by 2025, according to the research institute. To deal with excess capacity, winding down outdated refineries is a major priority, said Fu.

In the first half of 2020, China’s petroleum and chemical industry posted a 58.8% year-on-year profit slump to 141.6 billion yuan, with profit from the refining sector plunging more than any other segment, losing 159% compared with the first half of 2019 to start the second half of the year 24.4 billion yuan in the red, Fu said.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full Caixin article in Chinese, click here.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Heather Mowbray (heathermowbray@caixin.com)