Understanding China’s Refining Landscape - Platts China’s Refining Landscape By Yao Li, ......
Transcript of Understanding China’s Refining Landscape - Platts China’s Refining Landscape By Yao Li, ......
油田秋浓 (Oil Facility in Autumn), Changqing
Photography by 许兆超 (Zhaochao Xu)
Platts Asian Refining Summit 3 March 2016
Understanding China’s Refining LandscapeBy Yao Li, SIA Energy
Oil Demand
SIA Energy ◦ Page 3sia-energy.com
Chinese economy cooled to 6.9% in 2015. SIA estimates GDP growth will future slow to 6.5% in 2016.
Short Term Economic Outlook: A Chilly Start For 2016
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GDP Growth Agriculture Growth Industrial Growth Service Growth
Source: SIA Energy
China's Quarterly GDP Growth
SIA Energy ◦ Page 4sia-energy.com
Industrial value-added growth slipped to 5.9% in December 2016, reflecting the ongoing process of destocking, restructuring and rein in of overcapacity.
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Feight Volume Growth Crude Steel Production Growth
Power Generation Grwth Cement Production Growth
Source: SIA Energy
Industrial Production
Power Generation Growth
The On-going Economic Transition Is Painful for Industries, Especially the Sectors with Over-capacity
SIA Energy ◦ Page 5sia-energy.com
China has been rebalancing its economy from industry sector driven to consumption oriented. A improving sign has been seen in 2012 as service sector overtook industry sector as the largest portion of Chinese GDP. China retail sales of consumer good recorded more than 12% growth since January 2015, thanks to robust expansion in E-commerce.
Domestic Consumption Becomes the Main Engine for Economic Growth
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Retail Sales Growth (Y-o-Y, R-Axis)Source: China NBS
Total Retail Sales of Consumer Goods
SIA Energy ◦ Page 6sia-energy.com
Although GDP growth is slowing, it remains strong for the next two decades. Also as the base gets bigger, less growth is required to generate the same added value and new jobs.
Longer Term: More Slow Down, But Not That Scary
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Trillio
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China: Real GDP
Source: SIA Energy
CAGR11.2%
7.8%
6.2%
4.9%
4.0%
SIA Energy ◦ Page 7sia-energy.com
China’s oil product demand used to be highly correlated with GDP growth in the industrial sector, but in the past three years, private consumption has taken over as the main demand driver.
China Oil Product Demand Growth Changes Engine
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Industrial GDP Growth LPG, Gasoline & Kerosene Demand Growth
Diesel, HFO & Other Products Demand GrowthSource: SIA Energy
China Oil Product Demand Growth Vs. Industrial GDP Growth
Source: SIA Energy
SIA Energy ◦ Page 8sia-energy.com
Compared to developed countries, China is still at a very early stage of the vehicle ownership growth story, leaving much potential to catch up.
However China’s vehicle ownership vs GDP per capita will have a much shallower S curve than western countries.
China’s Passenger Car Growth Story Has Just Begun
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Source: SIA Energy from various sources
Passenger Cars Per 1000 People (2012)
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201488
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2030269
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China: Vehicle Ownership vs. GDP Per Capita
Historical
Forecast
Source: SIA Energy
SIA Energy ◦ Page 9sia-energy.com
Although new sedan sales have contracted in 2015, SUVs and MPVs sales are still enjoying impressive double-digit growth.
China sold 21 million new passenger cars in 2015, among which gasoline-guzzling large passenger vehicles constitutes 45%.
Recent Passenger Car Sales Show Growth Momentum in Heavier Gasoline Cars
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Million units
Sedan MPV SUV Passenger Van
Source: SIA Energy
China Passenger Car Sales by Vehicle Type
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Sedan56%
MPV10%
SUV29%
Passenger Van5%
Source: SIA Energy
Breakdown of New Car Sales in 2015
Total21.1 million
SIA Energy ◦ Page 10sia-energy.com
Alternative Fuels Still Have a Long Way to Penetrate the Passenger Car Fleet
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Share of Hybrid, EV & CNG Passenger Car (R-axis)
Source: SIA Energy
China Alternative Fuel Passenger Car Ownership
Other Passenger
Car97%
CNG2%
Hybrid & EV1%
Source: SIA Energy
Breakdown of New Car Sales by Fuel in 2015
Total21.1 million
Gasoline 97%
SIA Energy ◦ Page 11sia-energy.com
Top congested cities in China still register strong sales for passenger cars despite car purchase restrictions are implemented. Currently there are only 8 cities in China implemented such restriction, while there are more than 300 cities without any control.
Road Congestion is Not a Constraint in Most Provinces
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China Passenger Car Incremental Growth (2014)
SIA Energy ◦ Page 12sia-energy.com
As Chinese GDP is increasing driven by consumption, lighter oil products (gasoline, kerosene, LPG, Lubricants) enjoy a healthier growth than the middle distillates and heavy products (diesel, HFO, asphalt) which are highly correlated to industrial GDP.
Light Products Lead China’s Oil Demand Growth
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Other products HFO Diesel Kerosene Gasoline LPG
Source: SIA Energy
China Oil Product Demand
Source: SIA Energy
Refining Capacity
SIA Energy ◦ Page 14sia-energy.com
China Refinery Map
Chinese Refineries
SIA Energy ◦ Page 15sia-energy.com
China Refining Capacity Stands at ~17 mmb/d
China refining capacity stands at 16.9 mmb/d by the end of 2015. Sinopec remainsChina’s largest refiner but its share has shrunk to 34%, from 39% five years ago.Except for NOCs, independent refiners also played a significant role in the capacityaddition in the past five years.
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Source: SIA Energy
China Refining Capacity Additions by Operator 2010-2030
Sinopec34%
CNPC23%
ChemChina5%
CNOOC5%
Yanchang2%
Sinochem1%
Independent30%
Source: SIA Energy
China Refining Capacity by Operator (2015)
16.9 mmb/d
SIA Energy ◦ Page 16sia-energy.com
Most Greenfield Refineries are Facing Delays; Expansions Will Lead New Capacity Building in the Next Three Years
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Source: SIA Energy
China Regional Refining Capacity Addition (2016-2018)
China’s New Refining Capacity
SIA Energy ◦ Page 17sia-energy.com
In order to meet growing oil product demand, it is expected to see significant refining capacity additions by 2030, led by NOC Majors as well as independent refineries.
China Refining Capacity Additions 2016-2030
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Source: SIA Energy
China Refining Capacity By Operator
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Impact of Rising Independent Refiners
SIA Energy ◦ Page 19sia-energy.com
How China’s Crude Import Regime Has Evolved
Prior to 1993
China National Chemicals Import & Export Corp. (中国化工进出口总公司), predecessor of
Sinochem, was the sole authorized crude importer in China
1993-2001
More state-authorized traders were created to share the crude import right with Sinochem: • China Oil (中联
油), a JV
between Sinochem & CNPC
• Unipec (中联化),
a JV between Sinochem & Sinopec
• Zhuhai Zhenrong (珠海振戎)
2002-2014
Co-existence of • a dominant state
trading system consisting of five state traders (CNOOCJoined the crew) with no quota restriction
• a non-state trading system with marginal quota, designed to superficially meet WTO requirements while preserving NOC monopoly
From 2015 onward
Qualified independent refineries are allowed to import and process imported crude oil upon approval by the NDRC and Ministry of Commerce (MOFCOM)
SIA Energy ◦ Page 20sia-energy.com
Up to date, 12 independent refiners have been granted right to process imported crude oil with an annual total quota of 1.03 mmb/d. Another eight have filed for application, pending for NDRC approval. These 20 refineries hold 1.65 mmb/d quota to process imported crude. Independent refineries processed more than 600 mb/d imported crude in December 2015, contributing to China’s crude import spike in the 4Q2015 (8.8% increase y-o-y). The independents are expected to boost China crude runs in the next three years.
Non-state Crude Import Reshapes Refining LandscapeIndependents crude runs are ramping up rapidly
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Source: SIA Energy
Imported Crude Processing Quota by Company
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Panjin
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Hongrun
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Kenli
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Baota
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Source: SIA Energy
Independents Crude Imports (2H2015)
~54.8 mmb
SIA Energy ◦ Page 21sia-energy.com
12 Independent Refineries Were Granted Quota and License to Process Imported Crude, Totaling 1 mmb/d
SIA Energy ◦ Page 22sia-energy.com
In Spite of the Limited Opening, Crude Import License and Marketing Rights Are Still Under Tight Control
Legalized access to imported crude and thefurther shut-down of small CDU units willboost the utilization rate for China’s teapotrefineries. However, there are still regulatoryconstraints in the crude import system thatwill continue to prevent independents to forman integrated value chain.
Qualified teapot refineries have access to import crude
More selected private players to receive non-state import license
Non-state importers could freely sell crude to non-state refineries
No license or quota restriction for crude imports
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Source: SIA Energy
China Refinery Utilization Rate By Operator
SIA Energy ◦ Page 23sia-energy.com
In 2016, SIA estimates the 21 major independents will import 1.67 mmb/d crude, nearly five times of the 2015 level.
Impact on Crude DemandCrude imports by independent refiners will increase dramatically in 2016
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Independent Refiners Capacity and Import Crude Demand
SIA Energy ◦ Page 24sia-energy.com
Impact on Fuel Oil DemandImports will disappear, domestic output will shift users
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Shandong Independent Refineries Feedstock Processed in 2014-2015
Most of imported fuel oil will be displaced by imported crude going forward; much of the domestic fuel oil output will go to teapot refineries who have not obtained access to imported crudes.
SIA Energy ◦ Page 25sia-energy.com
Impact on Product ExportsNOCs will have to dump oil products in the International Markets
Growing independent refineries withimported crude quota will ramp up theirutilization as they are more cost-competitive, more responsive to marketthan NOCs’ refineries.
To fight against intensive competition fromindependents, NOCs are expected toincrease oil product export in the nextthree years to balance their domestic oilproduct output & sales imbalance.
▫ Sinopec and CNPC had applied record-highvolume of gasoline, kerosene and dieselexport quota in the 1Q2016 due to weakeningdomestic oil product sales.
In December 2015, China MOFCOM(Ministry of Commerce) and China Customannounced an unexpected oil productexport quota of 447 mb/d for the firstquarter of 2016, achieving an y-o-ygrowth of 116%.
The hike in oil product export quotaindicates NOC’s overstocking of gasolineand diesel due to the squeezed of marketshare by independents.
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China Major Oil Product Exports & 1Q2016 Quota
SIA Energy ◦ Page 26sia-energy.com
Independents Together Match Sinopec’s CDU Capacity
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China Refining Capacity in 2016
SIA Energy ◦ Page 27sia-energy.com
Major Refining Players
Refinery Complexity
Planning and Hedging Ability
Logistical Handling
FinancialCredibility
Domestic Marketing
Oil Product Export
Sinopec
CNPC
CNOOC
Sinochem
Norinco/Zhenhua
ChemChina
Dongming
Panjin North Asphalt Fuel
Kenli
Baota
Chambroad
Yanchang
Hongrun andother 6
10 Players
But Most of Them Are Inexperienced in Trading
Sophisticated/Strong Position
Upgrading Position Nascent PositionWeakness/
Desire to EnterOpportunity for
Foreign Cooperation
Tier-1 Independents
Tier-2 Independents
Tier-3 Independents
Tier-2 NOCs
Tier-1 NOCs
Crude Storage
SIA Energy ◦ Page 29sia-energy.com
China’s SPRs
s
SIA Energy ◦ Page 30sia-energy.com
China’s CPRs
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SIA Energy ◦ Page 31sia-energy.com
Implied Crude Filling Rates Takes Into Account SPR & CPR Capacity Ramp Up and VLCC Port Capacity Constraint
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China's SPR and CPR Stock vs Capacity
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China’s SPR & CPR Quarterly Crude Filling Rate Forecast
Crude Imports
SIA Energy ◦ Page 33sia-energy.com
Incremental crude demand in China will be 860 mb/d in 2016 driven by: 1) gasoline-led domestic product demand; 2) commissioning of new refineries and reconfigured refineries; 3) windfall profit for the refining sector and increased overall utilization after government introduced a price floor; 4) local government GDP driver and job pressure pushing for higher utilization and product exports; 5) new import license to independents expected to be fully executed; 6) higher NOCs product exports driven by product structure and squeezed domestic market; and 7) continued SPR & CPR filling. Given the fact that domestic production will decline this year, China’s crude import growth will be more than 900 mb/d for 2016.
Summary: China Incremental Crude Demand (2016F)
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Incremental Crude Demand (2016F)
SIA Energy ◦ Page 34sia-energy.com
ME sour crude market share in 2016 will be squeezed by ESPO (via Kozmino), Southeast Asian crudes as the latter are more attractive to the emerging independents for their low sulfur content and geographic proximity. Venezuela’s share will also shrink because lighter crudes are more desirable in general to yield gasoline so China Oil will likely push the oil-for-loan locked Venezuelan crude to N America. Crudes from Africa, Oman, Iraq will grow in 2016 not only for their desired quality but also as oil from these countries are frequently handled by oil traders, targeting the independents. With sanctions lifted, imports from Iran will climb in 2016 yet will not increase at its full tilt due to de-sulfurization capacity constraint at CNPC & independent refineries.
China’s Imported Crude Slate Will Be Lighter and Sweeter in 2016
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Imported Crude Source Forecast for 2016
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