Up to 1.3 million b/d of additional refinery capacity had been expected to come on stream in China during 2012 and 2013, analysts said late last year.
Wood Mackenzie has estimated that China will see 12.7 million b/d of primary refining capacity by the end of this year, largely unchanged from its forecast last year, downstream analyst Sushant Gupta said Thursday.
Barclays Research said it expected some 1.1 million b/d of overall expansion this year, with primary crude distillation unit capacity addition at around 690,000 b/d, its China commodities analyst Sijin Cheng said on Friday.
"There were definitely more CDU expansions last year but this year all those that have been planned are still going ahead. Right now there might be some movement [in timeline] because of [weaker margins and oil product] price sensitivities, but these are not structural issues," Cheng said.
The bulk of expansions have been led by state-owned PetroChina and Sinopec, or China Petroleum & Chemical Corp., which together account for about 70% of the country's total refining capacity.
JP Morgan said in a report on August 30 that it expects 13 refineries to see expansions over 2013-14, accounting for some 1.32 million b/d of additional capacity, two-thirds of which are likely to be completed this year.
A significant proportion of this year's expansions are still to be realized, however, with two new refineries yet to be commissioned.
PetroChina's 10 million mt/year (200,800 b/d) Pengzhou refinery in central Sichuan province has faced repeated delays. It was originally scheduled to start up at the end of last year but was delayed because of a lack of crude oil supplies from Kazakhstan. It faced a further setback in May due to safety concerns following a major earthquake in Sichuan, while heavy flooding in July led to some pipeline damage, which might have affected crude supplies to the refinery, according to sources at PetroChina.
An official at the environmental protection bureau in Sichuan said Thursday that the Pengzhou project has passed all the required environmental and safety approvals.
"Once the project has been approved, PetroChina can decide when to start it," he said, explaining that there were no longer any government obstacles hindering startup.
Engineering sources with knowledge of the project said Wednesday that minor changes to some major units as well as auxiliary ones at the refinery are still going on.
PetroChina has not publicly revealed the new timeline for Pengzhou, but analysts' estimates of when the refinery might be commissioned range between the fourth quarter of this year and Q1 of next year. REDUCED REFINERY UTILIZATION RATES
The second greenfield refinery is state-owned trader Sinochem's 12 million mt/year (241,000 b/d) Quanzhou project in the southern province of Fujian.
The company is on track to commission the facility by the end of this year, although it will run at 60-70% of capacity next year before ramping up to full capacity in 2015, Platts reported previously.
This is in line with an overall drop in utilization rates this year, due to lower demand for gasoil, which accounts for a major chunk of China's oil products slate, as well as the increased refinery capacity.
The survey of over 20 of China's largest state-owned refineries carried out by Platts every month shows that the average utilization rate fell to 80% of total installed capacity over January to August this year, from 83% during the same period of 2012.
While in the past refinery utilization has generally mirrored the growth in China's domestic oil demand, the substantial capacity additions expected to come online "necessitate that refinery utilization fall in order to keep runs tracking" relatively slower product demand growth, as there are limits to the refiners' ability to export in view of government quotas, JP Morgan said in its report.
Chao Guohui, an analyst at investment bank China International Capital Corp., said Friday that the country has seen an oversupply of products this year, which has prompted higher exports in the first half compared with H1 2012.
"This oversupply situation is likely to persist in the second half, particularly as refiners have largely completed their seasonal maintenance," he said. "So while there may be some recovery in demand, the excess supply may push back the start of new refineries."
CICC has estimated that China's total refinery capacity will increase 5.9% year on year to 573 million mt (11.5 million b/d) in 2013. Sinopec, China's largest refiner, leads the increase, growing 5.8% year on year to 272 million mt while PetroChina's capacity is expected to rise 2.9% to 176 million mt. DEMAND STILL LOOKS BULLISH
Woodmac's Gupta said a key factor that will affect refinery expansions will be the balance of demand and supply of transportation fuels.
"We do see some surpluses remaining in transportation fuels, so we might see delays [in some projects], particularly with the joint ventures," he said, referring to state-owned companies' plans to set up new refineries with foreign partners.
The primary cause of these delays will be negotiations by the foreign firms seeking access to retail fuel marketing rights as part of the refinery projects that Chinese refiners have been unwilling to grant, he added.
Refining capacity in China is expected to reach 13.3 million b/d by the end of 2015, slightly lower than Woodmac's earlier forecast of 13.6 million b/d, Gupta said.
The new capacity additions may result in a surplus of oil products over 2017-2018, but this will likely be outpaced by growing demand, making China a deficit market again by 2020, he said.
