China has some 1.4 million bpd in new refinery capacity under construction, to be completed by the time peak fuel demand occurs in about five years, Bloomberg has reported, citing forecasts by CNPC.
The 1.4 million bpd, distributed among four refinery projects, will add to more than 1 million bpd in new capacity already added since last year, the report also notes. This means billions of dollars spent on refining capacity that may never come to be used as China works on its shift to a more renewable energy mix and EV dominance.
So far this year, China has been a beacon of hope for the fuels industry thanks to its quick recovery from the coronavirus pandemic that ensured the equally quick recovery in oil demand near pre-pandemic levels. But a lot of that recovery in demand for crude oil was driven by nothing else but record low prices. China simply stocked up on crude while prices stayed low.
Refinery runs increased in tune with the economy’s recovery. In fact, in June refinery runs hit an all-time high of 14.08 million bpd, after in February they fell to a six-year low at the height of the pandemic in the country. But the cracks may begin to show soon: fuel exports from China are weak, unsurprisingly, and refinery runs are starting to dip, albeit slowly for now.
In late September, Reuters reported that Chinese state refiners were cutting their runs, with PetroChina alone slashing 5 to 10 percent during that month. Private refiners are not doing much better, fighting slim margins for months with the outlook still grim.
“The impacts of COVID-19...are putting extreme pressures on the refining business that we have not experienced before and are not sustainable over the longer term,” an analyst from Australian Viva Energy Group told Reuters in September.