Massive oil refining capacity idle in China as prices soar


Chevron oil refinery in U.S.

NEW YORK: As gasoline prices soar and the United States considers invoking Cold War-era laws to boost production, there’s a massive pool of oil refining capacity on the other side of the Pacific Ocean that’s sitting idle.

Around a third of Chinese fuel-processing capacity is currently out of action, as Asia’s largest economy struggles to put the coronavirus behind it.

If tapped, the extra supply of diesel and gasoline could go a long way to cooling red-hot global fuel markets, but there’s little chance of that happening.

That’s because China’s refining sector is set up mainly to serve its mammoth domestic market. The government controls how much fuel can be sent abroad via a quota system that also applies to privately owned companies.

And while Beijing has allowed more shipments at times over the years, it doesn’t want to become a major oil-product exporter as that would run counter to its goal of gradually decarbonising the economy.

“China’s absence in the export market is keenly felt in the broader regional, and even global market,” said Jane Xie, a senior oil analyst at data and analytics firm Kpler.

There’s been a massive expansion in refining capacity in the country over the last three to five years, but that’s no longer translating into increased oil-product exports, she said.

The contrast between China and the United States – where refineries in some areas are running at close to full capacity – reflects a tectonic shift in the industry over the last few years.

European and North American plants have been shutting down, a trend that was accelerated by Covid-19, while most new facilities are being built in the developing world, particularly Asia and the Middle East.

In China, many of the new plants are mega-refineries, which have the flexibility to produce both fuels and petrochemicals. The rapid growth means China may already be the world’s biggest refiner, with 17.5 million barrels a day of capacity at the end of 2020, reaching 20 million by 2025. — Bloomberg

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