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China Refining Industry Outlook
and Oil Demand Peak
March 25, 2019Xiaoming KE
CONTENTS 1
In the future: oil demand growth shifting from fuel-driven to petrochemical feedstock-driven
3 Transformation and upgrading of refining industry in China under a new round of investment
2
The refining industry in China ranking among the top in the world
The refining industry in China ranking among the top in the world
The refinery capacity in China ranks among the top in the world, and is still in expansion
4
-. - -
.-. - -
l In 2018, China’s refinery capacity came to 16.8 Mb/d. New capacity mainly came from independent refiners.l In response to the upgrading of oil quality, refineries in China are becoming increasingly complex.
75%
57%
39%
25%
43%
61%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000-2008 2008-2014 2014-2018
The share of new capacity from independent refiners is increasing
State-owned refinery
5622
1675478%
70%66%
72%
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
80%
15000
25000
35000
45000
55000
65000
75000
85000
95000
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Stages of growth in refinery capacity (kb/d)
Capacity Capacity increment
Refinery utilization
Independent refinery
The increasing crude oil processing meets domestic demand
5
l By 2018, China’s refining throughput was 12.1 Mb/d, and the dependency on imported crude oil came to 70.8%.l Since the release of imported oil quotas in 2015, the growth rate of refining throughput has risen from 4.1% to 5.4%.
l The utilization rate of independent refineries increased from 30% in 2014 to 60% in 2018, and the share ofimported crude oil in processing feedstock increased from 21% to 71%.
%
The crude oil processing volume is rising (million b/d)
3 15 0 2
AAGR 8.3%AAGR 8.1%
AAGR 4.3%
AAGR 5.8%
crude oil processing volume
Dependency on imported crude
21% 24%
45%58%
71%
55% 58%
49%37%
25%
0%
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
10 0%
2014 2015 2016 2017 2018
The bottleneck of crude oil for independent refineries is eliminated (10,000 tons)
4 3 3Imported crude Domestic crude Other sources
Urgent issue: large numbers of refineries with small average capacity
6
l By 2018, the average refinery capacity in China was only 87 Kb/d, which is only half of the global average level.l Excluding the outdated capacity of less than 40kb/d, the average utilization rate could be around 82% in 2018.
54
70
49
15
4
0 100 200 300 400 500 600 700
�40
40-100
100-200
200-400
≥400
Number of refineries
2018 China refinery capacity distribution(1,000 b/d)
18,133 16,754
6,217 5,002
3,484 87
0
50
100
150
200
250
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
�� �� �� �� �
The top 5 oil refining countries (1,000 b/d)
Total capacity Average refinery capacity
U.S. China Russia India Japan
In the future: Oil demand growth shifting from fuel-driven to petrochemical feedstock-driven
8
Outlook for demand-The key driver for China oil demand is shifting from fuel to petrochemical feedstockThe rough picture:l The future oil consumption will peak due to factors such as economy, population, fuel economy and EV deployment.
l Compared with the relative rigid demand of jet fuel and petrochemical feedstock, gasoline and diesel are more
likely to be replaced.
l There is still uncertainty about vehicle fuel economy improvement and the development of electric vehicles.
12.4
14.5
12.0
10
11
12
13
14
15
16
17
18
2018
�
��
��
��
���
����
�
2025-2
030
�
��
��
��
���
����
�
2050
�
The factors affecting oil demand are changing (million b/d)
20
18
Alte
rnativ
e
s Alte
rnativ
e
sTra
nsport
Petro
chem
ical
Avia
tion
Fuel e
fficie
ncy
EV
20
25
-
20
30
EV
Fuel e
fficie
ncy
Avia
tion
Petro
chem
ical
Tra
nsport
20
50
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Demand for oil and oil products (million b/d)
� � � ��� � -�
Chemical light oil: 3.7Around 2050
Diesel: 3.5Around 2015
Gasoline: 3.2Around 2025
Kerosene:1.8Around 2045
Oil: 14.5
Light
chemical oil
Oil (right
axis)
Gasoline Diesel Jet fuel
Driver shifting--Fuel-oriented oil consumption in China is decreasing
9
l China's oil demand reached 12.4 million b/d in 2018. What’s more, the oil consumption structure has changed or is about to change.
l Instead of transportation fuel, petrochemical feedstock will become the major refining product by 2050.
37%53% 51% 47%
35%
9%
15% 16% 25%36%
26%
12% 11%8% 8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
The trend of oil consumption structure in China
G NO ITransport Industry Daily useTransport
0: : 120 2 5 2 . 1 2 20 0 2 0 2. 252 .1 . 021 .42 :3 1 . C. :
: 12 : 22 52 4 : 4 12 . 1 3: 0 : 5 4 . 1 1.2E : 0: : 0 2. 4
Transportation ,52 4 : 5 0. : 2 5 1 : 2 52 4 : 5 :3 :
0: :
: 2 0 . 25 0 2 : 2 5 2 1 : 2. . 21 . 1 3 2 20: : 2 4 : 21
, . 2 :12 05. 42 . 1 52 12 2 : 2 :3- .002 2 . 2Petrochemi
calAgriculture Constructio
nOthers
Macro driver- Large potential of per capita consumption and the gradually emerging demographic impact
10
l Compared with other countries, the energy consumption per capita GDP of China is still rising.l In the future, China's GDP growth will slow down, but the quality of economic growth will be improved. l The fertility rate is declining in China and the population will peak before 2030.
13.7 14.2
13.4
12%
25%
10.0
11.0
12.0
13.0
14.0
15.0
2015 2020 2025 2030 2035 2040 2045 2050
The population in China is aging (100 million)
��� ����-�Total population
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0 10000 20000 30000 40000 50000 60000
Kg per capita
US$ per capita
GDP per capita & Energy consumption per capita
�� � �� ��
Oil consumption peaked
Germany Japan Korea U.S. China Elderly population
The population densityPeople/km2 6000-8000 100-500 4-35
300
(livable)
Natural resources Extremely
scarce
Rich in coal
Lack of oilRich in oil & gas
Rich in coal
Lack of oil
Proportion of fuel tax 60%-80% 40%-70% 10%-20% 40%
Industrial driver-Broad prospects for China auto industry in the take-off period
l Currently, the vehicle ownership in China was 130 vehicles per 1000 people, which is still in the take-off period of
auto industry compared with developed countries.
l Considering the high density of population and the lack of oil and gas resources in China, the saturation level of
vehicle ownership will not be too high. Even so, the vehicle ownership will still double that of now by 2050.
0
100
200
300
400
500
198
0
198
5
199
0
199
5
200
0
200
5
201
0
201
5
202
0
202
5
203
0
203
5
204
0
204
5
205
0
Forecast of passenger vehicle ownership in China
(million)
2009: 20 per 1000 people
2015: 100 per 1000 people
2017: per 1000 people , 180 million
2050: 350 per 1000 people , 470 million
11
Industrial driver-Improved fuel economy offsets the growth in transportation fuel demand
12
7.56.9
54.5
3.2
2
3
4
5
6
7
8
9
10
11
2005 2010 2015 2020 2025 2030
Fuel consumption rate of new vehicles continues to decline�L/100km�
� �� �� �� Europe
Stage I&II Stage III Stage IV Long-term planning
l Compared with Japan and Europe, China still has great potential to improve the fuel economy. Downsizing and hybrid technologies are feasible.
l If the fuel economy target of China is on schedule, it will save about 100 million tons of oil by 2050.
0
50
100
150
200
250
300
350
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
����� ����
100 million tons of oil
Improving fuel economy
Significant oil savings from fuel economy improvements (million tons)
Japan U.S. ChinaCurrent fuel economy
Alternative driver-Diversity of oil alternatives
13
l Currently, natural gas and coal-to-liquid, coal-to-olefin are the main oil substitutes. l After 2025, electric vehicles will replace natural gas as the first alternative.
NG36%
EV7%
Biofuel9%
Methanol1%
Coal-to-oil12%
Coal chemical industry
35%
2018
NG12%
EV58%
Biofuel7%
Coal-to oil3%
Coal chemical industry20%
2050
4%
9%
16%
25%
34%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
5000
10000
15000
20000
25000
30000
35000
2015 2020 2030 2040 2050
The consumption of oil alternatives is increasing �kb/d�
��� ���� ��� ��
�� ��� ���� ��
48
1320
282
4360
6260
The share in oil consumption
NG EV Biofuel Methanol
Coal-to-chemicals
Coal-to-oil
14
Electric vehicles-The leading role of China in the global market �
Targets for EV development in major countriesl In 2018, China EV sales accounted for about
half of global EV sales.Ø EV Sales: 1.26 million, market penetration rate:
4%Ø EV ownership: 3.1 million, accounting for 1.6%
of the total domestic vehicle stock
l With clear government targets, EV may become the direction for the future auto industry in China.
Country 2020 2025 2030 Technology roadmap
China5 million
Penetration rate: 7%
20 millionPenetration rate:
15%
80 millionPenetration rate:
40%Mainly BEV
US 1.2 million / / BEV & PHEV
Japan / / Penetration rate: 50%-70% BEV, HEV & PHEV
Germany 1 million / 5 million BEV &PHEV
France 2 million / / Clean energy vehicles
UK 1.6 million / / Ultra-low emission vehicles
Norway 400,000 100% zeroemission / BEV/HEV/PHEV/FCV
58
20
24
13
2010 2014 2015 2016 2017
Global sales of BEV+PHEV (10,000)
�� �� �� ��
115
7454
32
OthersChina U.S. Europe
123
76
72
40
2010 2014 2015 2016 2017
Global ownership of BEV+PHEV (10,000)
�� �� �� ��
311
198
124
70
China U.S. Europe Others
Electric vehicles-The decisive period: 2025-2030 �
15
l 2025: EV will reach cost parity with conventional vehicles, which makes large-scale promotion possible.
l After 2030: Level 5 autonomous driving will be ready to be commercialized.
l There is still uncertainty in the development of EV.
Battery material• Scarcity of lithium and
cobalt resources
• Technology progress
Tax reform issues• fuel tax• Purchase tax reduction
for EV
Technologies for car sharing
• Sensing techniques
• Infrastructure such as high-precision maps
• Revisions of policies and regulations
Infrastructure• Charging facilities• Charging service
economy• Impact of peak charging
load on the grid
Technology roadmap for EV development
0
200
400
600
800
1000
1200
0
100
200
300
400
500
600
700
800
900
2010 2015 2020 2025 2030 2035 2040 2045 2050$/
kwh
km
��� ����-�
1G lithium battery
2G lithium battery
Next generationLithium metal
Fuel cell battery
Lithium iron phosphate
NCMNickel-rich NCMLi-rich manganese based cathode
Solid state lithium metal batteryLithium sulfur batteryLithium oxygen battery
400-500km, no mileage anxiety
100$/kwh, EV will reach cost parity with conventional vehicles
High specific energy and safer
All-electric-range Battery cost-right axis
Industrial driver-Significant growth of oil demand in petrochemical industry
Naphtha84%
CPP/DCC
2%
MTO5% CTO
9%
����
Naphtha61%
Coal-based Naphtha1%
CPP/DCC1%
MTO7%
CTO22%
Ethane5%
LPG2%
Acetylene1%
����
l In the future, with the improvement of living standards, auto, home appliances, textiles and real estate industries in China will continue to develop. Significant growth is expected in ethylene and PX consumption.
l Despite the diversification trend, Ethylene feedstock will still be dominated by petroleum-based feedstock.
3761
5230
7000
77008000
1997
2605
34433793 3800
10
1010
2010
3010
4010
5010
6010
7010
8010
9010
2015 2020 2030 2040 2050
Ethylene and PX demand (10,000 tons)
������� ��PX���
Changes in feedstock structure for ethylene
ethylene equivalent consumption
PX equivalent consumption
13
Transformation and upgrading of refining industry in China under a new round of investment
18
Advanced capacity will replace outdated capacity in the future
l China will have 4.32 million b/d new capacity and phase out 2.1 million b/d backward capacity before 2025.
l The total capacity will reach 18.8 million b/d by 2025.
New independent
refineries49%
Traditional independent refineries2%
State-owned refineries
49%
Shares of new capacity during 2019-2025
900
4320
790
2630
-460
-2100-1640
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
2019 2020 2025 2019-2025
Changes of capacity in China (1,000 b/d)
���� ����New capacity Phasing-out of outdated capacity
New capacity will be more concentrated, larger and more integrated
19
The new capacity is mainly located in bases in the eastern coastal areas.
l Under competition and the pressure of environmental protection, new capacity will be larger, more concentratedand integrated, and be more involved in the export market.
l Crude oil will be fully used in the processing.
400 400
320
400
87
�������/��
35%
50%46% 44%
50%
37%
66%
24%
12%
61%
����� �����
�� ��
�� �*
�����
Hengli Zhejiang Petrochemical
Southern China
Huizhou, Guangdong
Gulei II
Ningbo, Zhejiang
Lianyungang, Jiangsu
Changxing Island, Dalian
Panjin, Liaoning
Sino-Kuwait, Zhanjiang
Caojing, Shanghai
Caofeidian, Hebei
Shenghong
Current national average level
Refining capacity(kb/d)
Yield of petrochemical feedstock
Yield of refined oil
19
Refineries are seeking a way out according to their own characteristics
Expansion: 15 Mtons/year refining capacity and 1.2 Mtons/year Ethylene capacity
… …Overall optimization to produce petrochemical feedstock
State-owned existing enterprise
Expansion: 20 Mtons/year refining capacity, 1.4 Mtons/year Ethylene capacity and 5.2 Mtons/year PX capacity
… …The adoption of Diesel HC process
Integratedindependent enterprise
Expansion: 16 Mtons/year refining capacity, 2Mtons/year Ethylene capacity and 1.6 Mtons/year PX capacity
… …The adoption of H-oil process and cancel FCC units
State-owned new enterprise
Phasing-out: outdated capacity less than 2 Mtons/year
… …Expansion: 30 Mtons/year integrated units
Localindependent refineries
Transformation path
Emission reduction from the source
Process control enhancement
End treatment
IOT in refineries
Process optimization
Monitoring of operation
Environmentally friendly & Digital
20
21
Increasing influence of China in the Asia-Pacific refined oil export market
l In 2018, China's refined oil exports increased by 1.9 times compared with 2010 and became the fourth largest exporter in the Asia-Pacific region. (Top 3: Korea, Japan and India)
l Due to the low yield of refined oil in new capacity, the net export of refined oil will not increase much by 2020-2025.l In the future, large refineries in coastal areas will target both domestic and international markets.
6%
7% 8%
10% 10%
11% 11%
0%
2%
4%
6%
8%
10%
12%
-200
0
200
400
600
800
1000
2005 2010 2015 2016 2017 2018 2019 2020 2025
Outlook for China's refined oil import and export (kb/d)
�
��
���������-�
Import
Export
The share of import & export in Asia-Pacific market (right axis)
A more opening-up refining market in China welcomes cooperation in various fields
Investments overseas
• Yanbu Aramco Sinopec
refinery put into operation in
Saudi Arabia
• The “Belt and Road Initiative”
boosts oil and gas cooperation
among countries along the
route
Domestic refining
• PDVSA-CNPC Jieyang refinery is
under construction.
• Saudi Aramco joins Huajin
Petrochemical and Zhejiang
Petrochemical.
• BASF plans to build an integrated
petrochemical base in Guangdong
Retail market
• BP will build 1,000 gas stations in
China
• Saudi Aramco plans to enter the
retail market in Zhejiang
Charging service
• Tesla has built supercharging
stations in 27 provinces and cities.
• Shell‘s first charging station was put
into operation in Tianjin in September,
2018.
• In January 2019, BP's first
supercharging station was put into
operation in Shanghai
Oil import quotas for
independent refineries
Crude oil import
refined oil exports will
become ordinary
Refined oil export
Relax market access and
scrap limits on foreign
holdings
Refined oil sales
Coming soon……
Refined oil pricing mechanism reform
22
Thank you