Forecasts for excess capacity in Chinese refineries are getting serious. Utilization is expected to fall sharply due to the slowdown of economic growth, and rush of start-up of additional refineries.
Although exact number on the refinery capacity in China is not disclosed, industry sources estimate that nearly 800,000 barrels per day of new capacity was added in 2013. Accumulated refinery capacity in China at the end of 2013 could be 12.3 million bpd. Moreover, 1.1 million bpd capacity is expected to be added in 2014.
A strong increase of energy demand was anticipated in China after 2000 based on the steady economic growth in the country. Actually, Chinese petroleum consumption was accelerated in the later half of 2000s until 2010.
Despite Chinese refineries maintained their utilization rates above 80% at that time, shortages of product supply caused many social disruptions over the nation.
However, the growth of energy demand in China is slowing down rapidly after 2011.
Year-on-year growth of crude oil processing released by the National Bureau of Statistics fell from 14.5% in 2010 to 5.7% in the next year. The growth rate continued to shrink year by year to 3.4% and 2,5%, then slipped to 1.0% decrease in the first two months in 2014.
Even if gasoline production is sustained by steady car sales in the country, a growth of Chinese gasoline outputs fell to 4.9% on year in January-February in 2014 from 9.5% on year in 2013. Outputs of diesel that is the main petroleum product in China fell 2.6% from a year earlier in the first two months of 2014 after recorded a 0.3% on year tiny growth in 2013.
Despite the production is decreasing, commercial diesel inventory in China surged by 53% during the first two months in 2014, according to the Xinhua News. It suggests the current weak industrial activities in the country.
Under the such situation, many new refineries that were planned in the later half of 2000s are starting up.
Average utilization rate of Chinese refineries in 2013 was estimated at mid 70% based on official data provided by the government, but PetroChina sees much lower rate at 67%.
In 2014, the large increase of capacity and a further slump of petroleum demand may reduce the utilization rate to less than 60%.