Refining pivots towards Asia
Refining expansions were focused East of Suez, as the likes of China and India ramped up processing capacity and rubber-stamped new projects
The global refining sector saw mixed fortunes in 2018, though for most of the year margins were holding up strongly. While European refineries were generally hampered by their high exposure to a tepid domestic market, in the US, refiners on the Gulf Coast looked better positioned. They still enjoyed privileged access to burgeoning light-tight oil production that meets looming low sulphur requirements.
China proved itself to be a major driver of activity, with the authorities encouraging independent refiners to source their own supplies of crude. In May, China's Hengli Petrochemical—based in the Port of Dalian in northern China—leapt into prominence when the commerce ministry gave it the green light to import 400,000bl/d of crude oil, the biggest-ever quota for a so-called privately-owned "teapot" refinery. Overnight, the decision made Hengli an important buyer of Saudi Arabian crude oil. The first shipment, reportedly 2mn spot barrels of medium crude, was loaded in June and fed into Hengli's new refinery for trial runs.
On top of Hengli's increase in production, two other Chinese companies are buying in more crude to feed into new refineries. Hangzhou-based Zhejiang Rongsheng, another privately-owned petrochemical group, was due to start up the first phase of a $24bn, 800,000-bl/d plant in the eastern city of Zhoushan in late 2018. Around the same time, China National Petroleum Corporation's 100,000-bl/d expansion of the Huabei refinery in the north will come on stream. Combined, the three new refineries will boost China's production by nearly 10pc.
Another source of refining expansion in 2018 came in Saudi Arabia. In April, state oil company Saudi Aramco announced it was taking a 50pc stake, along with three Indian companies, in a $44bn refinery/petrochemicals plant on India's west coast. The facility will have be able to process 1.2mn bl/d of crude oil. In the same month, Aramco and France's Total struck a preliminary agreement to establish a similar facility at Jubail in the kingdom's Western Province, with 400,000 bl/d capacity. In March 2018, Aramco CEO Amin Nasser said Saudi Arabia wanted to strengthen the mutual oil-supply relationship and increase Saudi investments in China, particularly in the downstream. Like other Middle Eastern oil economies, Saudi Arabia wants to improve refining and petrochemical capacity to obtain more value-added from its crude sales.
India was also limbering up as a major source of downstream expansion in 2018. Reliance Industries, a private group with large oil and gas interests, was reported to be considering boosting its oil refining capacity by half though a new plant at Jamnagar that would be able to process as much as 30mn t/y of crude.
Turkey is also in the midst of a refining expansion. It was reported in November that a planned new $6.3bn oil refinery had been delayed until early in 2019, and that the plant would not reach full capacity until mid-2019. The 200,000bl/d STAR refinery, built by Azerbaijan state oil firm SOCAR, is set to be a game changer for Mediterranean oil markets and will increase the country's total refining capacity by just over a third. In September, SOCAR signed a contract with Russia's Rosneft to supply STAR with 1mn tonnes of Urals crude annually, about 20,000bl/d.
The Sultanate of Oman announced plans in November to merge state-run oil investment and refining companies to form a business that spans pumping crude and natural gas to processing and trading fuels. The Gulf state is to combine Oman Oil Co. and Oman Oil Refineries & Petroleum Industries into one company that will have combined stakes in about 1.1mn bl/d of refining capacity in Oman, India and Hungary and oil and gas production in Oman.
In neighbouring UAE, Abu Dhabi National Oil Corporation (Adnoc) announced plans in September to sell a minority stake in its refining business, having previously revealed plans to divest stakes and bring in new players in its downstream operation.