At least one small independent refinery in China's Shandong province has started dismantling its crude distillation unit (CDU) under a government project to replace older capacity with a new, large integrated project.
Rizhao-based Kinshi Bitumen, which has 60,000 b/d of CDU capacity, has become the first independent to permanently shut capacity in return for government compensation.
Kinshi has agreed to receive an upfront payment equivalent to 20pc of the value of its plant three months before ceasing CDU operations, another 10pc after operations are halted and 40pc within a month of the units being dismantled.
The refinery has output capacity of about 1.5mn t/yr (25,000 b/d) of bitumen. It was not producing bitumen at the time it started to dismantle the CDU because of a shortage of raw materials, according to market participants, although this could not be confirmed with the company.
Two other Shandong independents, the Kelida and Befar Binyang plants with combined capacity of around 100,000 b/d, may also permanently close under the plan. But many others are reluctant to follow suit and participate in the government plan, in part because refineries do not appear to be compensated for the full value of their plants.
The provincial government has set a target to shut all small refineries with less than 60,000 b/d by 2022. This capacity will be partly replaced by a 400,000 b/d integrated refinery and petrochemical project, Yulong Petrochemical, based at Yantai in northeast Shandong.
Nine refineries, with a combined capacity of 500,000 b/d signed preliminary agreements last year, to agree to swap equity in their plants for stock at Yulong. Kinshi's moves comes after the Yulong project received approval from planning body the NDRC earlier this month.
