Chinese state oil companies are delaying the expansion of new refineries as the market for petroleum products shows obvious signs of a glut.
One such postponed plan had called for the construction of a refinery near the city of Tianjin in northern China. Signed in 2010 as a joint-venture between Russia’s
Another delayed expansion is CNPC and Petroleos de Venezuela SA’s mega joint Jieyang plant in the eastern part of Guangdong province. The $9 billion refinery was originally set to open in 2014.
“Almost all big refinery projects have been put off or delayed,” Li Li, research and strategy director at ICIS China, tells FORBES, adding that the $9 billion Sino-Kuwait Guangdong Integrated Refinery is also one of them.
The delays come at a time when China’s rapid expansion of processing capacity has resulted in a domestic supply glut. China added about 250,000 barrel-per-day of refining capacity in 2013 and total capacity is expected to be in the ballpark of 12 million bpd in 2014. However, the country’s oil consumption registered in 2013 its slowest rise in more than a decade. CNPC forecasts that demand will grow about 4% in 2014, driven by the growing consumption of gasoline.
The result is that China has become a net exporter of refined oil products for the first time in four years. Exports of oil products were 650,000 barrels a day in March, while imports totaled 560,000 bpd.
“It is beyond doubt that there is an overcapacity in the refining sector… the rate of capacity utilization is low at every step,” Wan Xuezhi, an analyst at CIConsulting. He says there are still at least 30 refineries being planned or under construction.
However, Li says excessive capacity is no more than 5% of total demand, indicating that the sector is healthy in general and not likely to follow the path of the steel industry.
Still, investors are pulling out of the refining sector.
“International investors know what is going on… They are not putting their money in blindly,” Li says.
