Only a Respite for Refineries(1)

From Nation page 9, issue no. 345, Dec 12th 2007
Original article: [Chinese]

In early December, Sinopec rushed 500,000 tons of emergency crude oil to Shandong province. It is the first time that Sinopec had shipped extra crude oil to local refinery plants outside of the established supply framework, and comes just one week after the National Development and Reform Commission (NDRC) commanded it and PetroChina to do more to alleviate the oil product supply crisis.

During the oil shortage of recent months, local refineries have been operating below production capacity, sometimes going so far as to halt production. Although this latest measure will relieve the oil shortage in Shandong province temporarily, it cannot quench local refineries’ thirsty for crude oil in the long term. Conservative estimates put local refineries’ productivity at 40 million tons per year, double what Sinopec can supply Shandong province.

Sparing Some Crude

This is the first time that, with the government’s urging, Sinopec and local refineries have cooperated to face off the shortage.

Before, many local refineries has no choice but to resort to importing fuel oil from Southeast Asia as their refinery materials. Fuel oil is the remnant of crude oil after the first round of refining. Refining oil products from fuel oil is not only technically challenging, excessively energy-consuming and expensive, but both quantity and quality of the output are inferior. It is estimated that the output from fuel oil is just 60 percent of that from crude oil.

In the past, when repurchasing oil processed by refineries that it supplies, Sinopec used to demand a 50 yuan sales charges. Facing increasing opposition to the policy by refineries, Sinopec recently canceled this policy.

As a result of the supply bailout and other cooperation, the shortage has been eased in certain areas. According to several gas stations the reporter visited, diesel oil is no longer sold by quotas, and the long queues at petrol stations have become scarcer.

The move can be attributed to the NDRC. At the end of November, the body pushed cooperation between Sinopec and local refineries in the Dongbei region, Shandong, Shanxi, and Sichuan provinces.