SINGAPORE, Sept 20 (Askume) – China’s Shandong Yulong Petrochemical on Friday began operating one of two new 200,000 barrel-per-day crude oil units in east China, sources said, marking the refinery’s official start of production after four years of construction.
The 400,000 barrel-per-day refinery is the only major Chinese refinery to come online this year and one of the last greenfield refineries to be built as Beijing broadly curbs crude refining capacity as China’s fuel demand peaks.
The Yulong refinery, located on an artificial island in Longkou county, Yantai city, Shandong province, hopes to keep its crude oil unit running at least until the end of the year, said a source at the Shandong refinery with knowledge of the situation.
The rollout comes as China’s refinery crude throughput fell for a fifth consecutive month in August from a year earlier to a nearly two-year low, as diesel demand fell while gasoline consumption shifted to electric vehicles, according to an earlier Askume report.
“The Yulong refinery was launched at the request of the provincial government, despite the company’s own concerns about very low profit margins in the current market environment,” the source said.
Another source familiar with Yulong refinery operations said the refinery is expected to start secondary units in the coming days, including a reforming unit with an annual processing capacity of 2.6 million tonnes to produce petrochemical feedstock.
Yulong Petrochemical did not immediately respond to a request for comment.
It could take several months for the refinery to ramp up output to commercial operating levels, but the start-up time amid weak processing margins means Yulong can rely on cheap crude supplies such as Russia’s ESPO blend to manage costs, the sources said.
However, Saudi Arabia could become a potential source of crude supply, as state-run Aramco agreed to acquire a 10% stake in Yulong last October in exchange for a crude supply deal.
It is one in a series of similar strategic deals between OPEC’s top oil producer and private Chinese refiners.
The $20 billion Yulong project, consisting of a 400,000 barrel-per-day crude oil refinery, a 3 million ton-per-year ethylene complex, and a 3 million ton-per-year paraxylene facility, will help upgrade Shandong’s sprawling refinery industry, which consists of dozens of small independent refineries (called “teapots”).
The project is 51% owned by private aluminium smelter Nanshan Group, 46.1% owned by provincial government-backed Shandong Energy Group, and the remainder by two local companies.
