China Refining Industry Outlook and Oil Demand Peak
Xiaoming KE March 25, 2019 The refining industry in China ranking among the top CONTENTS 1 in the world
In the future: oil demand growth shifting from fuel- 2 driven to petrochemical feedstock-driven
Transformation and upgrading of refining industry in 3 China under a new round of investment The refining industry in China ranking among the top in the world The refinery capacity in China ranks among the top in the world, and is still in expansion
- . The share of new capacity from . - - - independent refiners is increasing . - - 100%
90% Stages of growth in refinery capacity (kb/d) 25% 95000 80% 78% 16754 80% 43% 85000 78% 70% 76% 61% 75000 74% 60% 65000 72% 50% 55000 72%70% 70% 40% 45000 66% 68% 75% 66% 30% 57% 35000 5622 64% 20% 39% 25000 62% 10% 15000 60% 0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2000-2008 2008-2014 2014-2018 Refinery State-owned Independent Capacity Capacity increment utilization refinery refinery
l In 2018, China’s refinery capacity came to 16.8 Mb/d. New capacity mainly came from independent refiners. l In response to the upgrading of oil quality, refineries in China are becoming increasingly complex.
4 The increasing crude oil processing meets domestic demand
The crude oil processing volume is rising (million b/d) The bottleneck of crude oil for independent refineries is eliminated (10,000 tons)
10 0% 90 % AAGR 8.3% 25% 80 % AAGR 8.1% 37% 70 % 49%
60 % AAGR 5.8%
50 % 58% AAGR 4.3% 55%
40 % 71% 30 % 58% 45% 20 %
10 % 21% 24%
0% 2014 2015 2016 2017 2018 % crude oil Dependency on 4 3Imported crude 3Domestic crude Other sources 3 15processing volume 0 2imported crude l By 2018, China’s refining throughput was 12.1 Mb/d, and the dependency on imported crude oil came to 70.8%. l Since the release of imported oil quotas in 2015, the growth rate of refining throughput has risen from 4.1% to 5.4%. l The utilization rate of independent refineries increased from 30% in 2014 to 60% in 2018, and the share of imported crude oil in processing feedstock increased from 21% to 71%.
5 Urgent issue: large numbers of refineries with small average capacity
The top 5 oil refining countries (1,000 b/d) 2018 China refinery capacity distribution(1,000 b/d)
20000 250 18,133 18000 16,754 ≥400 4 16000 200
14000 200-400 15 12000 150
10000 100-200 49 8000 100 6,217 6000 5,002 40-100 70 4000 87 3,484 50
2000
0 0 40 54 U.S. China Russia India Japan 0 100 200 300 400 500 600 700 Total capacity Average refinery capacity Number of refineries l By 2018, the average refinery capacity in China was only 87 Kb/d, which is only half of the global average level. l Excluding the outdated capacity of less than 40kb/d, the average utilization rate could be around 82% in 2018.
6 In the future: Oil demand growth shifting from fuel-driven to petrochemical feedstock-driven Outlook for demand-The key driver for China oil demand is shifting from fuel to petrochemical feedstock
The rough picture: l The future oil consumption will peak due to factors such as economy, population, fuel economy and EV deployment. l Compared with the relative rigid demand of jet fuel and petrochemical feedstock, gasoline and diesel are more likely to be replaced. l There is still uncertainty about vehicle fuel economy improvement and the development of electric vehicles.
The factors affecting oil demand are changing (million b/d) Demand for oil and oil products (million b/d) 18 8.0 Oil: 14.5 16. 0 17 7.0 14. 0 16 6.0 12. 0 15 14.5 5.0 10. 0 14 Diesel: 3.5 Chemical light oil: 3.7 4.0 Gasoline: 3.2 8.0 13 Around 2015 Around 2050 Around 2025 12.4 12.0 3.0 6.0 12 Kerosene:1.8 2.0 Around 2045 4.0 11
10 1.0 2.0 2018 2025 2050 2018 Transport Petrochemical Aviation efficiency Fuel EV s A 2025 Transport Petrochemical Aviation efficiency Fuel EV s A 2050 2030 lternative lternative 0.0 0.0 - 2030
- 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Gasoline Diesel Jet fuel Light Oil (right- chemical oil axis) 8 Driver shifting--Fuel-oriented oil consumption in China is decreasing
The trend of oil consumption structure in China 100%
90% 0: : 120 2 5 2 . 1 2 20 0 2 0 2. 2 52 .1 . 021 .42 :3 1 . C. : 80% 8% 12% 8% 70% 11% 60% 26% 15% 16% 25% : 12 : 22 52 4 : 4 12 . 1 3: 0 : 5 4 . 1 1. 36% 50% 2E : 0: : 0 2. 4 40% 9% Transportation 30% 53% 51% 47% ,52 4 : 5 0. : 2 5 1 : 2 52 4 : 5 :3 : 20% 37% 0: :
10% 35% : 2 0 . 25 0 2 : 2 5 2 1 : 2 0% . . 21 . 1 3 2 20: : 2 4 : 21 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 , . 2 :12 05. 42 . 1 52 12 2 : 2 :3 G TTransportransport Petrochemi Industry NODaily use Agriculture Constructio I Others - .002 2 . 2 cal n l China's oil demand reached 12.4 million b/d in 2018. What’s more, the oil consumption structure has changed or is about to change. l Instead of transportation fuel, petrochemical feedstock will become the major refining product by 2050.
9 Macro driver- Large potential of per capita consumption and the gradually emerging demographic impact
GDP per capita & Energy consumption per capita Kg per capita The population in China is aging (100 million) 4.5 Oil consumption peaked 4.0 15. 0 13.7 14.2 3.5 14. 0 3.0 13.4
2.5 13. 0 2.0 25% 1.5 12. 0
1.0 12% 11. 0 0.5
0.0 10. 0 0 10000 20000 30000 40000 50000 60000 2015 2020 2025 2030 2035 2040 2045 2050 US$ per capita
Total population Elderly -population Germany Japan Korea U.S. China l Compared with other countries, the energy consumption per capita GDP of China is still rising. l In the future, China's GDP growth will slow down, but the quality of economic growth will be improved. l The fertility rate is declining in China and the population will peak before 2030.
10 Industrial driver-Broad prospects for China auto industry in the take-off period
Forecast of passenger vehicle ownership in China (million) 500 2050: 350 per 1000 people , 470 million
400
300
200 2017: per 1000 people , 180 The population density 300 6000-8000 100-500 4-35 million People/km2 (livable) 2015: 100 per 1000 people 100 Extremely Rich in coal Rich in coal Natural resources Rich in oil & gas scarce Lack of oil Lack of oil 2009: 20 per 1000 people 0 Proportion of fuel tax 60%-80% 40%-70% 10%-20% 40% 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 l Currently, the vehicle ownership in China was 130 vehicles per 1000 people, which is still in the take-off period of auto industry compared with developed countries. l Considering the high density of population and the lack of oil and gas resources in China, the saturation level of vehicle ownership will not be too high. Even so, the vehicle ownership will still double that of now by 2050.
11 Industrial driver-Improved fuel economy offsets the growth in transportation fuel demand
Fuel consumption rate of new vehicles continues to decline Significant oil savings from fuel economy improvements (million tons) L/100km
11 350
10 300 9 7.5 250 100 million 8 tons of oil 6.9 7 200
6 5 150 5 4.5 100 4 3.2 3 50 Stage I&II Stage III Stage IV Long-term planning 2 2005 2010 2015 2020 2025 2030 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Europe Japan U.S. China Current fuel economy Improving fuel economy l Compared with Japan and Europe, China still has great potential to improve the fuel economy. Downsizing and hybrid technologies are feasible. l If the fuel economy target of China is on schedule, it will save about 100 million tons of oil by 2050.
12 Alternative driver-Diversity of oil alternatives
The consumption of oil alternatives is increasing kb/d NG Coal chemical 36% industry 6260 35000 40% 35% 34% 30000 35% 2018 4360 30% 25000 Coal-to-oil EV 25% 12% 25% 7% 20000 282 20% Methanol Biofuel 16% 9% 15000 1% 1320 15% Coal chemical 10000 9% NG 48 10% industry 20% 12% 4% 5000 5% Coal-to oil 3% 0 0% 2050 2015 2020 2030 2040 2050 Biofuel EV NG EV Biofuel Methanol 7% 58%
Coal-to- Coal-to- The share in oil chemicals oil consumption l Currently, natural gas and coal-to-liquid, coal-to-olefin are the main oil substitutes. l After 2025, electric vehicles will replace natural gas as the first alternative.
13 Electric vehicles-The leading role of China in the global market
Global sales of BEV+PHEV (10,000) Global ownership of BEV+PHEV (10,000) 311 115 40 13 198 72 74 24 54 20 124 76
32 70 58 123
2010 2014 2015 2016 2017 2010 2014 2015 2016 2017 China U.S. Europe Others China U.S. Europe Others Targets for EV development in major countries
Country 2020 2025 2030 Technology roadmap l In 2018, China EV sales accounted for about 5 million 20 million 80 million half of global EV sales. China Penetration rate: Penetration rate: Penetration rate: Mainly BEV 7% 15% 40% Ø EV Sales: 1.26 million, market penetration rate: US 1.2 million / / BEV & PHEV 4% Penetration rate: Japan / / BEV, HEV & PHEV 50%-70% Ø EV ownership: 3.1 million, accounting for 1.6% Germany 1 million / 5 million BEV &PHEV of the total domestic vehicle stock France 2 million / / Clean energy vehicles l With clear government targets, EV may UK 1.6 million / / Ultra-low emission vehicles become the direction for the future auto 100% zero Norway 400,000 / BEV/HEV/PHEV/FCV emission industry in China.
14 Electric vehicles-The decisive period: 2025-2030
High specific energy and safer Battery material Tax reform issues • Scarcity of lithium and • fuel tax 1G lithium 2G lithium Next generation Fuel cell cobalt resources • Purchase tax reduction battery battery Lithium metal battery • Technology progress for EV
900 Lithium iron NCM Solid state lithium metal 1200 phosphate Nickel-rich NCM battery Technologies for car Infrastructure 800 Li-rich manganese Lithium sulfur battery based cathode Lithium oxygen battery 1000 sharing • Charging facilities 700 • Sensing techniques • Charging service 600 800 • Infrastructure such as economy 500 high-precision maps • Impact of peak charging 600 km • Revisions of policies load on the grid 400 $/kwh 400-500km, no mileage anxiety and regulations 300 400
200 100$/kwh, EV will reach cost parity with conventional vehicles 200 l 2025: EV will reach cost parity with conventional 100 vehicles, which makes large-scale promotion 0 0 2010 2015 2020 2025 2030 2035 2040 2045 2050 possible. l After 2030: Level 5 autonomous driving will be ready All-electric-range Battery- cost-right axis to be commercialized. Technology roadmap for EV development l There is still uncertainty in the development of EV.
15 Industrial driver-Significant growth of oil demand in petrochemical industry
Ethylene and PX demand (10,000 tons) Changes in feedstock structure for ethylene
9010 Ethane LPG 8000 MTO 2% CTO 5% 8010 7700 5% Acetylene 9% 1% 7000
7010 CPP/DC CTO C 22% 6010 5230 2%
5010
3761 3793 3800 4010 3443 MTO 7% 3010 2605 1997
2010
1010 CPP/DCC Naphtha Naphtha 10 1% 61% 84% 2015 2020 2030 2040 2050 Coal-based Naphtha ethylene equivalent PXPX equivalent 1% consumption consumption l In the future, with the improvement of living standards, auto, home appliances, textiles and real estate industries in China will continue to develop. Significant growth is expected in ethylene and PX consumption. l Despite the diversification trend, Ethylene feedstock will still be dominated by petroleum-based feedstock.
13 Transformation and upgrading of refining industry in China under a new round of investment Advanced capacity will replace outdated capacity in the future
Changes of capacity in China (1,000 b/d) Shares of new capacity during 2019-2025 5000
4000
3000 2630
2000 4320
790 State-owned 1000 New refineries 900 49% independent 0 refineries -460 49%
-1000 -2100 -1640 -2000
-3000 2019 2020 2025 2019-2025 Traditional independent refineries New capacity Phasing-out of outdated capacity 2% l China will have 4.32 million b/d new capacity and phase out 2.1 million b/d backward capacity before 2025. l The total capacity will reach 18.8 million b/d by 2025.
18 New capacity will be more concentrated, larger and more integrated
The new capacity is mainly located in bases in the eastern coastal areas. 400 400 400 66% 61%
320 50% 50% 46% Panjin, Liaoning 44%
37% 35% Changxing Island, Dalian
Caofeidian, Hebei 24%
Lianyungang, Jiangsu 87 12% Caojing, Shanghai
Ningbo, Zhejiang Refining capacity/ Yield of petrochemical Yield of refined oil (kb/d) feedstock Gulei II Hengli Zhejiang Petrochemical
Shenghong Southern* China
Current national average level Sino-Kuwait, Zhanjiang Huizhou, Guangdong l Under competition and the pressure of environmental protection, new capacity will be larger, more concentrated and integrated, and be more involved in the export market. l Crude oil will be fully used in the processing. 19
19 Refineries are seeking a way out according to their own characteristics
Transformation path
State-owned Integrated State-owned Local existing enterprise independent enterprise new enterprise independent refineries
Expansion: 15 Mtons/year refining Expansion: 20 Mtons/year refining Expansion: 16 Mtons/year refining Phasing-out: outdated capacity less capacity and 1.2 Mtons/year capacity, 1.4 Mtons/year Ethylene capacity, 2Mtons/year Ethylene than 2 Mtons/year capacity and 5.2 Mtons/year PX capacity and 1.6 Mtons/year PX … … Ethylene capacity capacity capacity … … Expansion: 30 Mtons/year … … … … integrated units Overall optimization to produce The adoption of Diesel HC process The adoption of H-oil process and petrochemical feedstock cancel FCC units
Environmentally friendly & Digital
Emission reduction from the source IOT in refineries Process control enhancement Process optimization End treatment Monitoring of operation
20 Increasing influence of China in the Asia-Pacific refined oil export market
Outlook for China's refined oil import and export (kb/d)
1000 11% 11% 12% 10% 10% 800 10%
8% 600 7% 8% Import 6% 400 6% Export
200 The share of import &- 4% export in Asia-Pacific market (right axis) 0 2%
-200 0% 2005 2010 2015 2016 2017 2018 2019 2020 2025 l In 2018, China's refined oil exports increased by 1.9 times compared with 2010 and became the fourth largest exporter in the Asia-Pacific region. (Top 3: Korea, Japan and India) l Due to the low yield of refined oil in new capacity, the net export of refined oil will not increase much by 2020-2025. l In the future, large refineries in coastal areas will target both domestic and international markets.
21 A more opening-up refining market in China welcomes cooperation in various fields
Crude oil import Refined oil export Refined oil sales Refined oil pricing mechanism reform Oil import quotas for refined oil exports will Relax market access and Coming soon…… independent refineries become ordinary scrap limits on foreign holdings
Investments overseas Domestic refining Retail market Charging service
• Yanbu Aramco Sinopec • BP will build 1,000 gas stations in • Tesla has built supercharging • PDVSA-CNPC Jieyang refinery is China stations in 27 provinces and cities. refinery put into operation in under construction. • Shell‘s first charging station was put Saudi Arabia • Saudi Aramco joins Huajin • Saudi Aramco plans to enter the retail market in Zhejiang into operation in Tianjin in September, • The “Belt and Road Initiative” Petrochemical and Zhejiang Petrochemical. 2018. boosts oil and gas cooperation • BASF plans to build an integrated • In January 2019, BP's first among countries along the petrochemical base in Guangdong supercharging station was put into route operation in Shanghai
22 Thank you