NEA: End of the line for small oil refineries

Li Yi / China Daily

There are conditions on crude oil supplies as well. All new refining projects must ensure they'll have sufficient raw material supplies before the project can be approved. For Sino-foreign joint refining projects, the foreign side must be able to supply more than 60 percent of the crude.

The government won't approve new projects for companies that fail to eliminate capacity under an NEA-approved schedule.

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The administration has drawn up a capacity reduction timetable for major refiners, including PetroChina Co Ltd and ChemChina Petrochemical Co Ltd.

PetroChina is to cut 3.1 million tons of capacity in 2014, and ChemChina will cut 3.6 million tons by 2015, according to data from the document.

According to ICIS-C1 Energy, China's refining output will peak this year. And with consumption growth of refined products falling to its lowest point in the past 10 years during 2013, the sector faces continued excess capacity.

In March, China was a net exporter of refined products, shipping out 650,000 barrels per day while importing 560,000 bpd.

The NEA aims to foster several large refining companies to achieve strong competitiveness through industrial concentration, combining upstream and downstream resources.

In cities including Ningbo, Shanghai, Dalian and Nanjing, China will build large refining bases with more than 30 million tons of annual capacity each.

In other cities - Maoming and Huizhou in Guangdong, Quanzhou in Fujian, Caofeidian in Hebei and Tianjin - refining bases with capacity of more than 20 million tons annually will be formed.

Dong Xiucheng, vice-president of the School of Business Administration at the China University of Petroleum, said it's inevitable that China will eliminate outdated capacity and increase refining efficiency by industry integration.