China Outruns U.S. as The World’s Biggest Oil Refinery

(The Jakarta Post)

Current Conditions

Since the beginning of the oil era in the middle of the nineteenth century, America has been leading the oil refining market. At the moment, the major player in the U.S. petroleum refinery industry is experiencing a historic downturn due to the coronavirus pandemic. This month, Royal Dutch Shell plans to shut down its Convent refinery in Louisiana—the sophisticated and largest facility in the U.S.—after it failed to find a buyer. The refinery is the ninth in North America targeted for shutdown or idling since the pandemic, which has given a significant fuel demand loss globally. 

In contrast, Chinese private-sector firm—Rongsheng—has been advancing its refining capacity on the Zhejiang Petrochemical mega crude-to-chemicals complex in northeast China. Currently, the facility is taking advantage of stockpiling on china crude oil imports due to low oil prices. According to the International Energy Agency, China will outrun the U.S. oil refining capacity as early as next year. China’s refiners would become increasingly dominant in the international market for gasoline, diesel, and other fuel markets. The fact is also supported by the current market trend where oil exporters sell more crude to Asia than North America and Europe’s long-standing customers. 

 

The Boom of Plastics

The rise of China’s refining industry is in parallel with the growing demand for plastics in Asia. More than half of the refining capacity will be added in Asia from 2019 to 2027—70% to 80% will be focused on plastics. Rapid economic growth in Asia, motivating the region to develop an integrated refinery. These integrated refineries would transform the oil more into petrochemicals—the building blocks for anything from packaging into textiles—instead of generating fuels like gasoline. The new large and integrated plants would make another player harder to compete with, especially for those who lack scale, flexibility to switch between fuels and petrochemical, also the ability to access cheap crudes.

 

Refinery-Chemical Integration 

Despite the world’s concerns over plastics, the market for petrochemicals feedstock will remain strong in the long term. The changing landscape of the refining industry turns the stand-alone fuel focused on making refineries obsolete as the energy transition emerges. Integration between refinery and petrochemical would enable the refinery to have the flexibility to switch between fuel and chemical productions, based on the commodities value on the market. Consider the case from the latest event, where gasoline, jet fuel, and diesel—the core of most refinery products—are facing flat or declining market demand during the COVID-19 pandemic outbreak. However, the pandemic is raising the need for polymers in food packaging and cleaning products. The Integrated refinery could adapt to the situation by switching from producing fuel into chemical, which is a very lucrative move. Therefore, refinery-chemical integration is the key to winning the refinery business. 

 

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