Shandong local refineries struggle to survive under the double squeeze of policies and market
author: Ann
2025-04-24
Shandong's local refining industry, which once occupied an important position in China's energy landscape, is now in deep trouble and faces unprecedented survival challenges. Recently, many factors have intertwined, making the situation of Shandong's local refining more and more difficult.
From a policy perspective, the non-state-owned crude oil import quota allocation plan announced by the Ministry of Commerce in 2024 is like a boulder thrown into a calm lake, stirring up waves in Shandong's local refining industry. Yulong Petrochemical has risen strongly with a basic quota of 8.3 million tons, accounting for 62% of Shandong's new quota. In sharp contrast, 12 local refining companies such as Qingdao Anbang and Dongming Petrochemical have completely bid farewell to the quota list due to capacity replacement, and the quotas of another 23 companies have been significantly reduced by more than 50%. The National Development and Reform Commission's "Petrochemical Industry Plan for 2025" clearly pointed out that Shandong's refining capacity utilization rate needs to be increased to 85%, which means that about 38 million tons of inefficient capacity in the province are facing the fate of being eliminated.
The rigid constraints of capacity replacement also make the development of Shandong's local refining difficult. As a key project of the seven major petrochemical bases planned by the state, the Yulong Island Refining and Chemical Project (Phase I) integrates 11 local refineries with a total of 27.6 million tons of backward production capacity by "upgrading large and suppressing small". According to the replacement ratio of "1:1.25", the new production capacity needs to eliminate 1.25 times the old production capacity, which undoubtedly directly cuts off the channel for small and medium-sized local refineries to expand production. Data from the Shandong Provincial Department of Industry and Information Technology show that the number of independent refineries in the province has dropped sharply from a peak of 37 in 2015 to 19 in 2024.
At the technical level, Shandong local refineries are also facing huge transformation difficulties. At present, among the existing local refineries in Shandong, as many as 76% still use fuel-type refining units, and only a few leading companies such as Dongming Petrochemical and Jingbo Petrochemical have million-ton ethylene production capacity. If the transformation to chemical type is to be achieved, the transformation of a single hydrocracking unit requires an investment of 2.8-4.5 billion yuan, which is equivalent to the net profit of most companies for 3-5 years. Not only that, multinational companies such as BASF and ExxonMobil have applied for 52,000 Chinese patents in high-end fields such as polyolefin elastomers and hydrogenated nitrile rubber, building a strict technical blockade network. In contrast, the R&D investment intensity of domestic local refineries is less than 1.2%, which is only 1/5 of that of international giants.
On the cost and demand side, Shandong local refineries are also under great pressure. The Ministry of Ecology and Environment's "2024 Key Industry Environmental Protection Governance Plan" requires the VOCs emission limit of the refining industry to be reduced by another 20%, which makes the annual average increase in environmental protection transformation costs reach 15%. A local refinery in Linyi estimates that its processing cost per ton of oil has exceeded 1,800 yuan, approaching the industry's break-even line. At the same time, the penetration rate of new energy vehicles in Shandong has exceeded 34.7%, and the province's gasoline consumption has been negative year-on-year for 12 consecutive months. Sinopec Economic Research Institute predicts that by 2025, Shandong's demand for refined oil will be reduced by 18% compared with 2020, and the operating rate of catalytic cracking units may fall below 65%.
However, in the face of difficulties, Shandong local refineries are also actively exploring ways to break through. Shandong Province is piloting the "capacity replacement income fund", which will use 30% of the incremental tax revenue of the Yulong project to support transformation enterprises. The first batch of 520 million yuan has compensated 6 closed enterprises. The "High-end Chemical New Materials Innovation Alliance" led by Wanhua Chemical and jointly established with 7 local refineries has achieved 17 key technological breakthroughs in the fields of POE elastomers and lithium battery diaphragm materials. Jingbo Petrochemical has built the world's first 2.04 million tons/year advanced catalytic cracking unit, converting low-value slurry oil into high-purity needle coke; Jincheng Petrochemical has entered the bio-jet fuel track, and its 300,000 tons/year unit has won a long-term order from Airbus.
Although Shandong local refineries are in deep trouble under the dual squeeze of policies and markets, the active exploration of enterprises and the policy support of the government still bring a glimmer of hope for their future development. The future of Shandong local refineries depends on whether they can successfully transform and achieve phoenix nirvana in difficulties. This not only concerns the fate of Shandong local refineries themselves, but will also have a profound impact on the pattern of China's energy industry.
From a policy perspective, the non-state-owned crude oil import quota allocation plan announced by the Ministry of Commerce in 2024 is like a boulder thrown into a calm lake, stirring up waves in Shandong's local refining industry. Yulong Petrochemical has risen strongly with a basic quota of 8.3 million tons, accounting for 62% of Shandong's new quota. In sharp contrast, 12 local refining companies such as Qingdao Anbang and Dongming Petrochemical have completely bid farewell to the quota list due to capacity replacement, and the quotas of another 23 companies have been significantly reduced by more than 50%. The National Development and Reform Commission's "Petrochemical Industry Plan for 2025" clearly pointed out that Shandong's refining capacity utilization rate needs to be increased to 85%, which means that about 38 million tons of inefficient capacity in the province are facing the fate of being eliminated.
The rigid constraints of capacity replacement also make the development of Shandong's local refining difficult. As a key project of the seven major petrochemical bases planned by the state, the Yulong Island Refining and Chemical Project (Phase I) integrates 11 local refineries with a total of 27.6 million tons of backward production capacity by "upgrading large and suppressing small". According to the replacement ratio of "1:1.25", the new production capacity needs to eliminate 1.25 times the old production capacity, which undoubtedly directly cuts off the channel for small and medium-sized local refineries to expand production. Data from the Shandong Provincial Department of Industry and Information Technology show that the number of independent refineries in the province has dropped sharply from a peak of 37 in 2015 to 19 in 2024.
At the technical level, Shandong local refineries are also facing huge transformation difficulties. At present, among the existing local refineries in Shandong, as many as 76% still use fuel-type refining units, and only a few leading companies such as Dongming Petrochemical and Jingbo Petrochemical have million-ton ethylene production capacity. If the transformation to chemical type is to be achieved, the transformation of a single hydrocracking unit requires an investment of 2.8-4.5 billion yuan, which is equivalent to the net profit of most companies for 3-5 years. Not only that, multinational companies such as BASF and ExxonMobil have applied for 52,000 Chinese patents in high-end fields such as polyolefin elastomers and hydrogenated nitrile rubber, building a strict technical blockade network. In contrast, the R&D investment intensity of domestic local refineries is less than 1.2%, which is only 1/5 of that of international giants.
On the cost and demand side, Shandong local refineries are also under great pressure. The Ministry of Ecology and Environment's "2024 Key Industry Environmental Protection Governance Plan" requires the VOCs emission limit of the refining industry to be reduced by another 20%, which makes the annual average increase in environmental protection transformation costs reach 15%. A local refinery in Linyi estimates that its processing cost per ton of oil has exceeded 1,800 yuan, approaching the industry's break-even line. At the same time, the penetration rate of new energy vehicles in Shandong has exceeded 34.7%, and the province's gasoline consumption has been negative year-on-year for 12 consecutive months. Sinopec Economic Research Institute predicts that by 2025, Shandong's demand for refined oil will be reduced by 18% compared with 2020, and the operating rate of catalytic cracking units may fall below 65%.
However, in the face of difficulties, Shandong local refineries are also actively exploring ways to break through. Shandong Province is piloting the "capacity replacement income fund", which will use 30% of the incremental tax revenue of the Yulong project to support transformation enterprises. The first batch of 520 million yuan has compensated 6 closed enterprises. The "High-end Chemical New Materials Innovation Alliance" led by Wanhua Chemical and jointly established with 7 local refineries has achieved 17 key technological breakthroughs in the fields of POE elastomers and lithium battery diaphragm materials. Jingbo Petrochemical has built the world's first 2.04 million tons/year advanced catalytic cracking unit, converting low-value slurry oil into high-purity needle coke; Jincheng Petrochemical has entered the bio-jet fuel track, and its 300,000 tons/year unit has won a long-term order from Airbus.
Although Shandong local refineries are in deep trouble under the dual squeeze of policies and markets, the active exploration of enterprises and the policy support of the government still bring a glimmer of hope for their future development. The future of Shandong local refineries depends on whether they can successfully transform and achieve phoenix nirvana in difficulties. This not only concerns the fate of Shandong local refineries themselves, but will also have a profound impact on the pattern of China's energy industry.
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