Chinese state refiners cut runs further

Chinese state-controlled refiners are cutting crude throughputs further, to ease pressure on product stocks.

Chinese refinery runs in February look likely to be 3.9mn b/d lower than January, Argus' latest surveys indicate, or 9mn b/d — the lowest since January 2014. Sinopec's throughputs will average 3.66mn b/d this month, down by 1.4mn b/d from last month. PetroChina appears likely to run 2.58mn b/d of crude, down by 770,000 b/d from January.

Sinopec has lowered utilisation rates at most of its plants to 60-75pc, from its standard target of 80pc. This has required it to cut runs at a number of additional refineries. Its 240,000 b/d Qingdao Refining and Chemical plant in Shandong province will process 176,000 b/d of crude this month, rather than the planned 190,000 b/d, and its 260,000 b/d Tianjin refinery will process 170,000 b/d, rather than 200,000 b/d. Sinopec's 230,000 b/d Changling refinery in central Hunan is running one 160,000 b/d crude distillation unit (CDU) at 60pc.

Sinopec shut two gasoline units — a catalytic cracker and an S-Zorb unit — at Changling last week. It also shut an FCC at its 180,000 b/d Anqing refinery, also in central China.

The closures come as virus-hit Hubei province has banned almost all road travel.

Sinopec's flagship 470,000 b/d Maoming refinery, a major supplier of road fuel to southwest China, cut crude runs today for a second time this month, to 310,000 b/d. The firm will supplement gasoline supply to western China by moving 220,000 bl by tanker to south China from its 378,000 b/d Jinling refinery for injection into its pipeline to Yunnan province. The Jinling refinery has cut crude runs to 60pc this month, from the planned rate of 92pc, as it struggles with limited clean product storage capacity.

Sinopec is eager to defend its market share in western China, where PetroChina is also cutting runs. PetroChina's 260,000 b/d Anning refinery in Yunnan — which imports mainly Saudi crude through a pipeline across Myanmar (Burma) — is already running at less than 70pc, again because of a lack of products storage. PetroChina has cut run rates at its 230,000 b/d Fushun refinery in northeast Liaoning province for a second time this month. The plant will now average a 70pc utilisation rate, down from an earlier 88pc revision and a planned 100pc throughput rate.

Private sector mega-refiners Rongsheng and Hengli have not reported any further run cuts. Neither do Shandong's independents appear to be cutting any further after their initial, extensive cuts and shutdowns. Second tier state-owned Huajin — a subsidiary of Norinco — is running at 80pc, down from 100pc in January.

Final cut?

Much of China's refining fleet is running crude distillation capacity at the minimum levels required for secondary units to operate efficiently. Single train refineries — with one crude unit, one vacuum tower, one fluid catalytic cracker (FCC) and a single reformer — may struggle at utilisation rates below 60pc. Below this level, efficiency suffers, requiring proportionately higher energy inputs.

The weighted average utilisation rate of China's primary capacity is now around 60pc, a figure that includes crude unit shutdowns, which lower the average throughput figure without necessarily affecting efficiency. It is unlikely that oil companies will cut runs again this month.

Fuel demand may recover in the days ahead, as people return to work. Gasoline prices fell on the Shandong spot market today, to $60.18/bl from $60.63/bl at the end of last week. But diesel prices rose to $76.98/bl from $76.60/bl. Refiners are seeking to minimise gasoline and jet fuel yields, and to boost diesel output. This, and the shutdown of FCC units, is helping to shore up naphtha production.