Shandong's independent refinery capacity integration and relocation kicks off.
Release date:
2020-06-02
The first batch of 20 million tons of capacity replacement will be allocated to the Yulong Island Refining and Chemical Integration Project.
Recently, Shandong Jinshi Asphalt Co., Ltd. initiated the dismantling of its refining and chemical facilities, marking the official start of capacity integration and relocation efforts among Shandong's independent refineries. In May of this year, the company signed a relevant agreement on capacity integration and relocation with relevant departments in Shandong Province, becoming the first independent refinery to formally sign such an agreement and begin dismantling its equipment. Following the demolition, the facility will be integrated into the Yantai Yulong Island Integrated Refining and Chemical Project.
“This round of provincial-level refining enterprise capacity integration and relocation has brought a breath of fresh air to our company’s development,” said Lu Yiming, Chairman of the Jinshi Asphalt Union and External Cooperation Manager. He added that the company will fully leverage various favorable policies to invest in and build new projects, thereby driving its transformation and growth.
Shandong ranks first in China both in the number of independent refinery enterprises and their annual production capacity. However, more than 50 local refineries within the province remain scattered and operate independently, struggling to secure a foothold in the mid-to-low end of the value chain. In recent years, these companies have faced growing pressure as they compete with larger, integrated refining and petrochemical projects, leading to a steadily shrinking market space.
To this end, Shandong Province proposed in 2018 the vision of building an internationally leading integrated refining and chemical project with a capacity of 20 million tons per year or more, in order to meet the needs of high-end development in the province's petrochemical industry. In February 2019, the Shandong Provincial Government Work Report once again clearly stated, "We will accelerate the promotion of integrated refining and chemical operations and vigorously advance the preliminary work on the Yulong Island Integrated Refining and Chemical Project in Yantai."
As the Yulong Island refining and chemical integration project takes shape, Shandong's independent refinery enterprises have finally reached a comprehensive plan for capacity consolidation and relocation. In October 2018, the Shandong Provincial Government issued the "Implementation Plan for Accelerating High-Quality Development in Seven Major High-Energy-Consuming Industries," outlining specific measures for integrating and relocating local refinery capacities: By 2022, refineries located in densely populated urban areas and those with an annual processing capacity of 3 million tons or less will undergo consolidation and relocation; by 2025, refineries with an annual capacity of 5 million tons or less will be phased out and relocated in stages.
In August 2019, nine companies—including Keli Da, Fuyu Chemical, Haike Chemical, Zhonghai Fine Chemical, Chengda New Energy, Binyang Fuel & Chemical, Xintai Petrochemical, Jinshi Asphalt, and Hengyuan Petrochemical—agreed to participate in the capacity replacement for the Yulong Island project, becoming the first batch of independent refineries to reach an intention for capacity integration and relocation.
These nine companies collectively have a combined atmospheric and vacuum distillation processing capacity of approximately 25 million tons per year. According to the capacity replacement standard—requiring a reduction target of no less than 1:1.25—they align perfectly with the planned Phase I capacity of 20 million tons per year for the Yulong Island project. Additionally, these companies currently hold a total import crude oil quota of 13.56 million tons per year; once the integration is complete, these quotas will also be transferred entirely to the Yulong Island project.
To accelerate the promotion of integrated and relocated refining capacity, Shandong Province’s development and reform, finance, and other departments have also introduced practical implementation details, covering areas such as guaranteed loans, employee resettlement, capacity trading, tax allocation, as well as land and emission quota management.
In terms of fiscal and tax policies, a 20-billion-yuan project construction fund has been established for the Yulong Island integrated refining and petrochemical complex, primarily to be used for acquiring capacity indicators from smaller refineries. Regarding financial credit, enterprises involved in capacity integration and relocation will not face loan withdrawals, credit curtailments, or interrupted lending. As for land development, any revenue generated from re-leasing land previously vacated after capacity adjustments can be prioritized for the resettlement of enterprise employees.
The province is also promoting the trading of capacity indicators, with payment terms agreed as follows: 20% will be paid three months before the enterprise’s oil refining facilities are shut down, another 10% within one month after production ceases, and the remaining 40% within one month following the dismantling of the refining units.
Currently, cities such as Dongying and Binzhou are identifying and finalizing the list of enterprises slated for annual capacity integration and relocation. They are also organizing companies that have already reached preliminary agreements to sign formal integration and relocation contracts, while simultaneously issuing specific capacity integration and relocation tasks. In the second half of the year, more enterprises will begin dismantling their outdated oil refining facilities.
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