China's crackdown on excess may target oil refiners next

BEIJING (Reuters) — China’s oil refining and chemical sector, including coal-to-gas plants, may be the next target of Beijing’s campaign against overcapacity if it keeps expanding, said a government think-tank official on Wednesday.

China’s government has for years pushed to streamline its bloated heavy industries, focusing on coal, steel, aluminum and construction materials such as cement and glass.

Intense competition between state-owned and independent refineries and bumper profit margins amid low crude oil prices have led to rapid expansion and overcapacity, said Zhou Dadi, a researcher at the Energy Research Institute of China’s National Development and Reform Commission at a conference.

“China’s energy market is already in oversupply,” said Zhou. “(The authorities) should ... implement more rigorous control over energy supply.”

Any move to curb excess refining capacity would be welcomed by rivals in Asia, which have struggled as China’s refiners have sold more of their surplus diesel and gasoline abroad over the past year.

China holds the most refining capacity in the world after the United States and is expected to increase its refinery throughput by 3.3% to 557 MMt, or about 11 MMbpd, in 2017.

The International Energy Agency (IEA) said earlier this year that competition among China’s oil refineries will intensify this year with more than 500,000 bpd of new refinery capacity added to the overcrowded industry.

Beijing has granted an increasing number of crude oil import and export quotas to independent refiners in recent years.

Meanwhile, state-owned refiners are expanding.

China National Offshore Oil Corp (CNOOC) has started testing a new refinery with 200,000 bpd of capacity in southern China. PetroChina’s 260,000 bpd plant in Yunnan province is also said to launch soon.

“Blind investment in the energy sector has pushed up the energy cost in China ... The government should strengthen the management to overcome shortcomings of the market,” said Zhou.

Reporting by Muyu Xu and Josephine Mason; Editing by Christian Schmollinger

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