Refining surplus a looming problem: Sinopec

China, the world's largest energy user, is likely to have a serious excess in refining capacity amid booming domestic demand for oil products, a senior oil executive said on Wednesday.

"The fate of China's steel industry today will be that of oil refining tomorrow," said Fu Chengyu, chairman of China Petroleum and Chemical Corp, also known as Sinopec, on the sidelines of the ongoing annual two sessions.

He warned that if the country doesn't address the problem of excess capacity in oil refining, the industry will soon have a serious surplus, similar to the one now existing in the country's iron and steel sectors.

The refinery capacity in China is expected to reach 740 million tons in 2015 and increase to 910 million tons in 2020 with an operating rate of only 67 percent, much lower than the 72-75 percent rate of the steel industry, according to Fu, also a member of the Chinese People's Political Consultative Conference.

As a result, the surplus in the industry will rise to a whopping 220 million and 300 million tons by 2015 and 2020, respectively. The refining capacity is forecast to overtake the growth of oil product consumption in the country in the same period, said a report released by the China Petroleum and Chemical Industry Federation (CPCIF).

The country had only a modest excess capacity-of about 6 million tons-back in 2009, when the refining capacity was about 227 million tons and domestic consumption totaled about 221 million tons.

China's booming auto sector, with its soaring demand for oil fuel, coupled with the country's rapid economic growth, were some of the reasons behind the refining industry's rising output.

Fu, head of the region's biggest refiner, noted that overcapacity also is rampant in small, local refineries, which suggests the government should call for the elimination of outdated ones.

He said there are about 100 small-sized oil refineries with an annual capacity of less than 2 million tons in some parts of China. With their relatively low competitiveness, they are adding to the nation's surplus capacity.

Experts said the excess refining capacity not only makes market competition more fierce, but it also is wasteful.

Making the picture worse is the fact that China, the world's biggest net importer of oil and a leading buyer of petrochemicals, also is facing surplus capacity in chemicals, Fu said.

China's chemical industry has grappled with overcapacity for a long time. But this year will be the sector's toughest in quite a while.

Fu said consumption in the chemical industry is growing by 4 to 5 percent each year, with prices dropping sharply. He said he hoped that export tariffs could be lowered to give chemical producers a competitive edge in the global market.

During the first quarter, prices of chemical products slid, pushing industry profitability to its lowest level since the second quarter of 2009.

"We need to promote a healthy industry, one not built up by injections of money," Fu said.

Yao Jing contributed to this story.

(China Daily 03/07/2014 page17)