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China has a lot of oil refining capacity that isn’t being used as prices rise

As gas prices rise and the US thinks about using Cold War-era laws to increase production, a huge amount of oil refining capacity is sitting idle on the other side of the Pacific Ocean.

China is having trouble getting rid of the coronavirus, which has shut down about a third of the country’s fuel processing capacity. If it were used, the extra diesel and gasoline could help cool the red-hot fuel markets around the world, but that’s not likely to happen.

The main reason for this is that China’s refining industry is set up to serve its huge domestic market. Through a quota system that also applies to privately owned companies, the government controls how much fuel can be sent overseas. Even though Beijing has sometimes allowed more shipments, it doesn’t want to become a major exporter of oil products because that would go against its goal of slowly moving away from carbon-based energy.

Jane Xie, a senior oil analyst at the data and analytics firm Kpler, said, “China’s absence in the export market is keenly felt in the larger regional and even global markets.” In the last three to five years, the country’s refining capacity has grown a lot, but she said that this is no longer resulting in more oil product exports.

The difference between China and the US, where some refineries are close to full capacity, shows how the industry has changed a lot in the last few years. Covid-19 sped up the closing of plants in Europe and North America, while most new plants are being built in the developing world, especially in Asia and the Middle East.

See also: China is about to pass the U.S. as the largest oil refiner in the world.

Many of the new plants in China are so-called mega-refineries, which can make both fuels and petrochemicals. Due to its fast growth, the country may already be the largest refiner in the world. China National Petroleum Corp.’s Economics & Technology Research Institute says that by the end of 2020, it could handle 17.5 million barrels a day, and by 2025, it will be able to handle 20 million barrels a day. BP Plc’s most recent data show that the US could produce 18.14 million barrels per day in 2020.

CITIC Futures Co. says that on June 10, the big state-owned refineries in China, which make up about three-quarters of the industry, were running at about 71% of capacity. It said that the private processors, also called “teapots,” were only running at 64%. Most of these companies, which are mostly in the province of Shandong, are not allowed to export any fuel at all.

Even when things are going pretty well, China doesn’t send out a lot of oil products. Last year, it shipped about 1.21 million barrels of fuel oil, diesel, gasoline, and jet fuel every day, according to data from customs. That’s only about 7% of its total refining capacity at the end of 2020.

And this year, when local demand goes down, it’s not letting more shipments in. Instead, it’s doing the opposite. So far, only 17.5 million tonnes of fuel export quotas have been given out. At the same time last year, 29.5 million tonnes had already been given out. Government data show that the amount of diesel shipped fell to its lowest level in seven years in May.

See also: Oil Shock Hurts Poor Countries With Shortages and Protests.

In Singapore, which is a regional oil hub, the profit from turning oil into diesel has gone from about $10 a barrel at the beginning of the year to more than $60 a barrel now. Local industry consultant OilChem says that this means that Chinese refiners could be missing out on a windfall of up to $372 per tonne.

Beijing’s refusal to increase fuel production and act as a “swing producer” when there are shortages around the world is affecting everyone, from US drivers who are paying more at the pump to European factories that are bidding for scarce diesel cargoes. But China’s Asian neighbours, like Sri Lanka and Pakistan, are suffering the most because they don’t have enough fuel. This is hurting their economies the most.

(Adds information about diesel exports in the ninth paragraph. An earlier version of this story had a mistake in the fourth paragraph about what a Kpler analyst said.

About the author

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Kathy Lewis

Kathy Lewis is an all-around geek who loves learning new stuff every day. With a background in computer science and a passion for writing, she loves writing for almost all the sections of Editorials99.

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