September 4, 2017 / 10:48 AM / in 10 months

China's independent oil refiners plan to integrate production in new consortium

BEIJING (Reuters) - Independent oil refiners in China’s Shandong province are planning to form a consortium to integrate their production of oil products and petrochemicals, according to a planning document reviewed by Reuters

Since late 2015, China has allowed 31 mostly privately-owned oil refineries to import crude oil, the majority of them based in Shandong province. With a combined capacity to import about 2 million barrels per day (bpd), their demand has upset oil trading flows in Asia and in the wider global crude market.

Shandong Dongming Petrochemical Group and Shandong Qingyuan Group Co, both independent, or teapot, refineries in the province, will be among the key investors of the proposed group, according to the document that Shandong provincial authorities approved on Sept. 1.

The group will have the name Shandong Refining & Chemical Group Co, according to the document.

“Such a group is beneficial for expediting refining and chemical integration, larger scale in production facilities, cleaner production and higher quality of products,” the document said.

There were no specific details in the document on how big the consortium will be in terms of refining capacity or capital investment. Dongming and Qingyuan have a combined refining capacity of 20 million tonnes per year, or about 400,000 bpd.

Zhang Liucheng, a vice president at Dongming, the country’s largest independent refinery, said about 20 plants in Shandong have expressed interest in funding the new group.

“Our goal is to work closely and effectively from oil and petrochemical production to global trading to domestic marketing, sharing infrastructures like pipelines and storages, as well as cooperating in securing upstream oil and gas assets,” Zhang told Reuters on Monday.

“We’ll also aim for more coordination in investing in new technologies such as high-end petrochemicals,” said Zhang.

Most of China’s independent refiners are based in the eastern province of Shandong. Total annual quotas for the refiners approved by the government are 86 million tonnes, or 1.7 million bpd, said Zhang.

Their rise has contributed to a domestic surplus of gasoline and diesel fuel, as well as pollutants that Beijing is keen to curb as the government fights smog.

Longer-term, these independents will need to diversify or consolidate to stay competitive, industry analysts have said.

“Consolidating the fragmented sector into one company makes a lot of sense from the government’s perspective as it’s easier to impose regulations,” according to a research note on Monday by CitiBank.

Reporting by Chen Aizhu; Editing by Christian Schmollinger

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