China to tighten environmental oversight

China's ministry of ecology and environment (MEE) has issued a new draft regulation aimed at strengthening oversight on approvals of energy-consuming projects, in a sign of tightening environmental control that will have implications for the country's refining sector.

The MEE issued the draft copy seeking public opinion last month, which will require new, revamps and expansion projects to include pilot assessments of the carbon emissions impact of projects in their environmental impact assessment (EIA) reports, the first time it is requiring this. It will start with six energy-intensive industries including thermal power, petrochemicals, coal-to-chemicals, steel, non-ferrous metals smelting and cement.

China's refining, steel, cement, non-ferrous metal smelting, coal-to-chemicals and power sector together contribute some 86.5pc, 44.5pc, 22.7pc of industrial sulphur dioxide, nitrogen oxide and particulate matter emissions respectively, according to the MEE. These industries lack accountability and supervision, as well as a failure to implement local reductions, it added.

The MEE is facing increasing challenges supervising pollution control and is expected to act tough on local governments that fail to act. Its inspection work across 19 provinces last year revealed that several oil and petrochemical, as well as coal-to-gas projects, approved during 2016-20 did not meet environmental requirements as part of their EIA approvals. This include a failure to meet volatile organic compounds (VOCs) control requirements and exceeding of total hydrocarbon emissions, excluding methane, as well as environmental risk prevention measures not matching those specified in their EIA reports.

Problem projects

The MEE's scrutiny of these 19 provinces last year revealed problems in 25 out of 35 "key projects" including state-controlled firm PetroChina's under construction 400,000 b/d Jieyang refinery in Guangdong province and its 260,000 b/d Anning refinery in Yunnan, private-sector firm Shenghong Petrochemical's under construction 320,000 b/d Lianyungang refinery in Jiangsu and private-sector firm Rongsheng's 800,000 b/d Zhoushan ZPC refinery in Zhejiang. They were among the refineries named for failure to implement pollution control measures sufficiently.

The Jieyang project failed to include details such as investment costs for environmental protection facilities for an oil terminal, crude units, a 3mn t/yr delayed coking unit, and other units in its initial design. Rongsheng's ZPC refinery has yet to carry out leak detection and repair work since its start-up in 2019 and several units failed to comply with environmental regulations.

The Jieyang government had failed to fulfil a pledge to reduce atmosphere pollutants including VOCs, nitrogen oxide and sulphur dioxide by an end-2020 deadline in return for the refinery's approval. Shenghong missed a deadline by last December to reduce 2.9mn t of coal consumption, with it reducing just 55pc of this as of March. The MEE also found problems with the design of an oil terminal it is building.

Failure to rectify these requirements may delay their timelines, according to market participants. Shenghong is targeting a 2022 opening and Jieyang is scheduled to start up in the second half of next year.

Stricter measures

The government is expected to implement stricter measures on carbon, nitrogen oxide and sulphur oxide emissions and this is a concern for state oil firms, said an official from a Chinese state firm.

Under the latest draft regulation, local MEE branches will also need to report back on clean-up status and penalties for projects by the end of this month.

Local governments are required to submit pollution control plans for the six industries by the end of July and revisit these plans every six months. Projects that fail to meet deadlines or have undocumented discharge of pollutants will receive penalties, the MEE said.

The MEE has imposed some 1.6bn yuan ($248.6mn) in fines related to pollution violations in the first quarter of this year. The highest number of fines were imposed on Hebei, Jiangsu, Henan, Guangdong and Shandong provinces, forcing some companies to cut output or suspend production.