China's Refiners Start Lsfo Trial Production In

CHINA’S REFINERS START LSFO TRIAL PRODUCTION IN PREPARATION FOR IMO 2020

By Anita Yang IMO 2020 CHINA’S REFINERS START LSFO TRIAL PRODUCTION IN PREPARATION FOR IMO 2020

BY ANITA YANG JULY 2019

GUANGZHOU (ICIS) - China’s two oil giants, Sinopec and Among the 10 selected refineries, Shanghai Petrochemical, PetroChina, have been researching and trial producing Low Hainan Refining & Chemical and Jinling Petrochemical Sulphur Fuel Oil (LSFO) since the second half of 2018, successfully produced LSFO in the first quarter of 2019. The in preparation for the upcoming International Maritime LSFO was compliant with the IMO 2020 regulation and was Organisation (IMO) 2020 regulation, refiner sources said. sold to Sinopec Fuel Oil Sales Company as bunker fuel.

The IMO will implement a new regulation for a 0.5% Other selected refineries are in the research and test global sulphur cap for marine fuels on 1 January 2020, phases, and are expected to start trial production from the representing an 86% reduction from the current limit of second half of 2019. 3.5% sulphur content. PetroChina is slightly lagging behind in its LSFO The Chinese refiners have not started mass production production roadmap as it confirmed only in April 2019 yet due to unclear pricing and export policies, as well as that six underlying refineries are preparing to produce relatively high production costs, the sources said. IMO-compliant LSFO. Among the six refineries, Liaohe Petrochemical produced LSFO compliant with IMO 2020 CHINA STATE-OWNED REFINERS’ LSFO mandate in April, and the other five selected refineries, ROADMAPS including Guangxi Petrochemical and Jinxi Petrochemical, Sinopec has selected 10 refineries located in different are still in the research and test phases. Chinese coastal cities as the first group to produce LSFO, with a joint target to produce a total of 10m tonnes in 2020. China’s demand for bonded fuel oil for 2018 aggregated The joint target was set after Sinopec completed a survey 11m tonnes, which was covered by domestically produced in August 2018 on production costs and existing capacity of and imported supplies, official Customs data showed. If coastal refineries. Sinopec and PetroChina are able to meet their production

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Copyright 2019 Reed Business Information Ltd. ICIS is a member of RBI and is part of RELX Group plc. ICIS accepts no liability for commercial decisions based on this content. targets for 2020, they will be able to fully cover the domestic demand for bonded fuel oil. CHINA REFINERY OPERATIONS

China National Offshore Oil Corporation (CNOOC) and DATA REPORT Sinochem Quanzhou have not prepared to produce LSFO Available as a data Excel file, this monthly report gives because of unclear policies. you access to:

LSFO PRODUCTION METHODS n Refinery turnaround schedules covering the major state-run refineries Refiners that have sufficient Vacuum Residual Oil (VRO) n Throughput lost and updates on throughput plans in capacity and those that process sweet and light crude will Chinas take the lead in the move to produce IMO-compliant LSFO, n Updates on capacity expansion, analysis on potential while refiners without sufficient VRO capability will need to feedstock specifications invest in VRO unit. n Monthly operating rates n Production margin for imports and domestic feedstock Refiners with adequate VRO capability and process high sulphur crude do not need to revamp or add new VRO units. All they need is minor changes in the selection of crude grades. Refiners in this category include Sinopec’s Jinling Petrochemical, Zhenhai Refining & Chemical, Hainan Refining & Chemical, Qilu Petrochemical and PetroChina’s Guangxi Petrochemical.

Jinling Petrochemical and Zhenhai Refining & Chemical plan to increase sweet crude imports in the future so that they can blend Vacuum Gasoil Oil (VGO) and residual oil to produce LSFO. They currently mainly refine high sulphur Request a demo crude such as Basrah and Saudi crude.

Refiners that process high-quality crude can use requirements on VRO units. Sinopec’s Zhanjiang Dongxing existing refining units to produce on-spec LSFO, with no Petrochemical and PetroChina’s Liaohe Petrochemical are

LOW SULPHUR FUEL OIL PRODUCTION ROADMAPS OF SINOPEC AND PETROCHINA Group Refiner Progress Shanghai Petrochemical Started production in January Hainan Refining & Chemical Started production in February Jinling Petrochemical Started production in February Zhenhai Refining & Chemical Plans to start production in the third quarter Sinopec Qingdao Petrochemical Plans to start production in the fourth quarter Maoming Petrochemical Plans to start production in the second half of 2019 Zhanjiang Dongxing Plans to start production in the second half of 2019 Qilu Petrochemical Under planning, production schedule not determined yet Tianjin Petrochemical Under planning, production schedule not determined yet Zhongke Zhanjiang Plans to start production in 2020, after start-up of the refiner Liaohe Petrochemical Started production in April Guangxi Petrochemical Under planning Under planning, decided to build new residue oil hydrogena- PetroChina Dalian West Pacific Petrochemical tion plant Jinxi Petrochemical Under planning Dalian Petrochemical Under planning Jinzhou Petrochemical Under planning Source: ICIS

Copyright 2019 Reed Business Information Ltd. ICIS is a member of RBI and is part of RELX Group plc. ICIS accepts no liability for commercial decisions based on this content. typical examples of this category. CHINA INDEPENDENT Zhanjiang Dongxing Petrochemical processes sweet crude REFINERY REPORT imported from Angola, Gabon and Ghana, hence it can blend slurry oil, vacuum residue and catalytic gasoil to Keep up with China’s fast-moving refinery sector with this reports that is available in both PDF and excel data files produce on-spec LSFO. Liaohe Petrochemical processes giving you the following: crude from PetroChina’s oil field with low sulphur content. The sulphur content of its bunker fuel is generally at around n Crude imports, quotas of 0.2%, which is in line with the IMO requirement. independent refineries by specification and refiner n Crude inventories If a refiner’s existing VRO units could not meet future n Shipment arrival information demand of LSFO, they will need to invest in and build including volume, date, receiver new VRO units. PetroChina’s Dalian West Pacific and arrival ports Petrochemical, Sinopec’s Shanghai Petrochemical and n Output, inventory of major Maoming Petrochemical are in this category of refiners. independent refineries n Operating rates and refinery turnarounds Dalian West Pacific Petrochemical currently has 2.2m tonnes/year of VRO capacity. The refiner plans to build a new VRO unit to cope with the future production of LSFO, Request a demo and the new unit is expected to come on stream after 2020.

1.Economic benefits and policy support For most refiners, the production of LSFO will require intermediates such as vacuum gas oil and residue oil. This will squeeze the output of other refined products. Hence, the refiners have to choose between producing high-value gasoline and gasoil, or lower-value LSFO. ABOUT THE AUTHOR

Meanwhile, refiners are entitled to consumption tax and ANITA YANG value-added tax (VAT) rebates if their fuel oil export comes SENIOR ANALYST under the processing trade category. Processing trade refers to export or import of products made in a tolling Anita Yang is a Senior Analyst of ICIS, with key arrangement, where the feedstock or raw material is focuses on the China major refinery market. imported for the sole purpose of making products for export. With rich knowledge in China’s refined oil products However, most refiners import crude under the general market, Anita has over 12 years of analysis and trade category and hence if they export fuel oil, they will consulting experience on the China oil market, not enjoy any tax rebates. Exporting fuel oil is currently not and has a deep understanding of the production profitable without the tax rebates. Therefore, policy support and operation of major refineries. She also has is a major factor affecting refiners’ enthusiasm in low insightful understanding on pattern changes and sulphur bunker fuel production. medium - and long-term supply and demand forecast of China’s oil products market.She was 2. Alternative solutions cloud LSFO demand outlook invited to numerous industry meetings as a In addition to using LSFO directly, ship owners have the guest speaker. options of installing scrubbers or use alternative fuels such as liquefied natural gas (LNG). Scrubbers are expensive Anita is in charge of the ICIS China Refinery due to high costs of installation and maintenance, and Operating Analysis Report: retrofitting vessels to use LNG as a fuel would require time and investments. By the end of 2018, only about 1% of ship Tracking turnaround and newly-built/expansion owners across the world were equipped with scrubbers, plans of major refineries; calculating refining and that is expected to increase to only about 2% by 2020. margins and operating rates of major refineries However, the presence of these alternative solutions clouds using ICIS proprietary methodology; tracking the outlook demand for LSFO, hence many refiners are and reporting on crude oil and refined oil product hesitant to invest in LSFO production. inventories in China; collecting and analysing crude throughput of major refineries on a monthly basis to support customers’ decision-making.

CHINA REFINERY OPERATING ANALYSIS

Accessible as a Tableau-enabled file, this monthly analysis supports you with insightful data visualisation of:

n Refinery capacity n China major refineries’ crude throughput n Refinery capacity expansions, secondary units projects n 46 major refineries’ run rates projects n Refinery turnaround schedule n Throughput loss n Refining margins n SPR and commercial storage

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