China’s Xinhai to add 160,000 b/d refining capacity

Chinese independent refiner Hebei Xinhai is planning to more than double its crude processing capacity by next year after winning local government support for its expansion project.

Xinhai is aiming to bring on line another 160,000 b/d of capacity in late 2021, adding to its declared crude distillation capacity of 120,000 b/d. "We should start construction on the project soon," a refinery official said.

The company previously touted a plan to raise capacity to more than 200,000 b/d and add 1mn t/yr ethylene and 2mn t/yr paraxylene units, although it unclear if the expansion project still includes the petrochemical plants.

Xinhai has rights to process 74,000 b/d of imported crude and takes a variety of grades, including Brazilian Lula, Norwegian Johan Sverdrup and Russian Urals, traders said. It bought its first cargo of Abu Dhabi Upper Zakum crude through Shanghai's INE crude futures exchange this year.

Xinhai's plans add to just over 1mn b/d of other refining capacity expansions in China that are due on line by the end of next year, according to Argus estimates.

The refining expansion is part of Xinhai's long-mooted development plan to become more integrated and produce higher-quality products. It added a 1.4mn t/yr diesel hydro-upgrading unit earlier this year as part of a fuel upgrading project and last year obtained 10mn yuan ($1.5mn) in government subsidies for key upgrading projects in Hebei province.

The transformation into a large-scale refinery could reduce the chances of Xinhai being caught up in local government consolidation plans. Hebei's five-year plan for 2016-20 calls for small refiners to relocate by this year to Caofeidian in the northeast of province, where large-scale integrated refining and petrochemical projects would be developed. The Cangzhou city government in Hebei has also proposed merging two refineries operated by large state-run firms — Sinopec's 70,000 b/d Cangzhou and CNOOC's 120,000 b/d Zhongjie plants — to consolidate the local refining industry .

Xinhai may also be hoping to secure more crude import quotas through the new capacity, despite the government quota awards often falling short of companies' total refining capacity. Beijing is planning to expand its non-state crude import quotas by 20pc in 2021, although the extra quotas are likely to go to newer plants such as private-sector Shenghong's 320,000 b/d Lianyungang refinery that is expected on stream next year .

Independent refiners are technically not allowed to expand refining capacity after winning crude import quotas, as part of efforts by the central government to limit the growth of the country's independent refining sector. Those that fail to close or dismantle units are typically required to sell capacity to other refiners or build gas storage facilities after receiving the quotas.

Xinhai previously committed to closing at least 73,000 b/d of outdated refining capacity as a prerequisite for obtaining crude import rights. But some independents appear to have made little progress in closing capacity and it is unclear if Xinhai followed through on the cuts.

Location, location The company's location in a government-backed development zone outside the main independent refining hub of Shandong may have given it more flexibility to pursue its expansion plans.

Xinhai's refinery is located in Cangzhou city's Bohai New Area Lingang Economic Technological Development Zone, the third national-level development zone in Hebei province and the only one in Cangzhou.

The Cangzhou development zone has set a 10-year plan to attract Yn25bn in new investment by 2030, comprising Yn18bn for refining and petrochemical projects and Yn7bn for the chemical sector. Huanghua port in Cangzhou is planning to build a berth to receive 2mn bl very large crude carrier vessels, with completion targeted for 2022.

Xinhai may also have to compete with other ambitious integrated refining and petrochemical projects mooted for Caofeidian, including a 300,000 b/d refinery proposed by Tangshan Risun Petrochemical. Caofeidian is one of seven refining bases across China that have the backing of the central government.

By Karen Teo

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