BEIJING Jan 9 China's top oil refineries and major new plants will supply an additional 400,000 barrels per day (bpd) of fuel to the world's second-biggest consumer this year, more than double last year's rise, a Reuters survey found.
While that growth is nearly equal to the forecast increase in demand, China may be forced to continue importing extra supplies right up until the Olympics this summer as several key facilities will be commissioned only in the latter half of the year.
China has taken a measured approach to expanding its refining sector, pushing its big state oil firms such as Sinopec (0386.HK) to build enough new plants to meet fast-growing domestic demand while cautioning against excessive expansion -- in contrast to the surge in export-oriented investment in India and the Gulf.
The risks of that policy showed last autumn, when regional fuel shortages spread as far as the capital city, causing China's worst supply crisis in four years as the dozens of semi-official "teapot" refineries shut down due to soaring feedstock costs.
The new refineries due on stream this year -- including the first major project by offshore oil producer CNOOC (0883.HK), as well as a venture with Exxon Mobil Corp (XOM.N) and Saudi Aramco -- are the result of projects planned in the wake of China's demand spurt in 2004, when global oil markets awoke to its influence.
Another 16 plants, making up about half of the country's total refining capacity, will process an additional 220,000 bpd of crude this year, with increases mostly from newly revamped plants in Beijing and Shanghai, the survey of industry officials and company sources showed.
For a Table on 2008 refinery runs click on: [ID:nSP87132]
For spot news on Chinese refinery operations: [O/CNREFINE]
This year's growth marks an improvement on a particularly weak 2007, when a scant 190,000 bpd of increased supply fell far short of incremental demand, which the International Energy Agency (IEA) estimates at 370,000 bpd.
The IEA's latest forecast puts China's oil demand growth at 430,000 bpd this year, about one-fifth of the global increase.
"The general assessment is that the new capacities can cover demand growth. We are more concerned with the pressure on logistics to handle a surge in crude imports," said a Sinopec official. China, a net exporter some 13 years ago, is near to overtaking Japan as the world's second-biggest crude importer.
With August's Olympics in Beijing seen as a historic moment to showcase its growing clout, China will make sure that its refiners provide enough fuel to make the event a success, regardless of the losses they face when producing or importing fuel sold on the domestic market, where prices are kept low.
That would mean China, which is importing near record volumes of diesel in January and has slashed gasoline exports, could extend strong fuel imports into the second quarter, analysts said.
"If crude price beyond the first quarter continue to rise rapidly, that might result in renewal of local shortfalls in China if domestic prices fail to keep pace," said John Russel of oil consultancy KBC Market services.
While scant new refining capacity in 2007 was partly to blame for the supply squeeze late last year, China will do better in 2008 with four new refineries -- Sinopec's Qingdao and Fujian, CNOOC's Huizhou and PetroChina's (0857.HK) Dushanzi.
While those facilities will eventually pump a combined 700,000 bpd, most of that will not be felt until the second half of the year, nearly two years after China commissioned its last greenfield plant, the Hainan refinery in August 2006.
Following a one-year delay to the 100,000-bpd Dushanzi plant in the remote northwest due to severe weather and equipment delays, Sinopec's 200,000-bpd Qingdao plant in eastern Shandong province should be the first new plant of the year in March.
CNOOC's first oil refinery, the 240,000-bpd Huizhou plant in the booming southeastern province of Guangdong, is keeping to its target to start in October.
And Sinopec's 160,000-bpd Fujian plant in the southeast coast -- the joint ExxonMobil/Saudi venture more than 12 years in the making -- may start operations in the fourth quarter, sources have said.
To stave off supply crunch, which led to widespread diesel rationing last year, Beijing has waived a 17 percent value added tax on fuel imports through March and halved the import duty to 1 percent, rather than risk increasing already high inflation by raising fuel prices to match nearly $100 crude costs. (Editing by Jonathan Leff and Ramthan Hussain)
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