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Chinese industrial heartland Shandong to overhaul energy intensive industries

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Core Tip:China's Shandong province, home to a fifth of China's oil refining capacity, is planning to consolidate dozens of small
 China's Shandong province, home to a fifth of China's oil refining capacity, is planning to consolidate dozens of small refineries and build mega-petrochemical complexes, as part of a new plan to overhaul energy intensive industries, reported Reuters.

The plan is aimed at improving the efficiency and competitiveness in seven energy-intensive sectors, including steel, fertilizer, aluminum, coking coal and oil refining.

It comes amid an ongoing push by Beijing to tackle excess capacity in heavy industry and shift its economy to higher value-added sectors, and improve its dirty air.

"We will cap capacity of steel, petrochemicals, coking coal and aluminum and achieve a dro in energy intensity as well as total emissions from these sectors," the Shandong government said in the document published on its website.

The province, home to 90 percent of China's private refiners, wants to reduce total crude processing capacity from 130 million tons per year, or 2.6 million barrels of oil per day (bpd), to 90 million tons.

It will merge refiners with less than 3 million tons annual capacity by 2022, and later target those with up to 5 million tons, or about 100,000 bpd, before 2025.

It also wants to significantly reduce the output of diesel and gasoline by 2025.

The move is seen as positive for China's independent refining industry, currently facing fierce competition in local fuel markets and subject to frequent shutdowns due to environmental scrutiny.

The small private refiners known as "teapots" have a small share in domestic petrochemical markets, which are dominated by state companies such as Sinopec and foreign majors like Exxon Mobil.

"Shandong is being forced to reshuffle its oil industry under pressure from state-owned companies and foreign oil majors," said Zhong Jian, chief analyst with consultancy JLC.

Shandong said it will lobby for policy support from Beijing, including seeking approvals for new mega refining complexes and getting crude oil import quotas for new refineries. In the future, the province wants to build huge refining complexes with 30 million tons of yearly processing capacity and shift production to chemicals products.

The document also outlined plans for other sectors, such as capping annual fertilizer output at 8 million tons and reducing the number of coking coal producers from 56 to 40 in two years.

It also said 70 percent of steel mills built in polluted cities such as Jinan, Zibo and Binzhou will be forced to relocate to coastal areas.

The province said it would give incentives such as tax breaks and credit lines to help companies relocate and compensate workers made redundant during the relocation process.


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