Sinopec continues to entrust Shandong with refining and processing

After the fourth quarter of last year, Sinopec and other major oil companies began commissioning local refineries in Shandong Province to process crude oil, then purchased back the gasoline and diesel. This practice has continued into the present. Liu Aiying, chairman of the Shandong Petrochemical Industry Association, revealed this information to the *First Financial Daily* during the "China Petroleum Market Summit." She explained that Sinopec's current commissioning rate is around 2,000 yuan per ton, meaning that Sinopec pays about 6,500 yuan per ton for crude oil and buys back gasoline and diesel at approximately 8,500 yuan per ton. In the second half of last year, some regions faced a tight supply of refined oil, but Shandong avoided an actual "oil shortage" thanks to its local refineries. The same issue resurfaced in Shandong between May and June this year. Although the commissioning of gasoline and diesel was temporarily halted in the fourth quarter of last year, it has resumed recently. Liu told reporters that in the second quarter of this year, Sinopec commissioned about 700,000 tons of crude oil. In July, the total volume reached 1.05 million tons, and in August, it processed around 500,000 tons. PetroChina also had several hundred thousand tons of similar commissions. Although this amount is not significantly higher than the total crude oil processed by local refineries in Shandong, it still represents a valuable opportunity for them. Before 2000, when China did not yet regulate and reorganize the refining sector, there were 40 local oil refineries in Shandong, compared to about 200 nationwide. After the cleanup, the number of national local refineries dropped from 200 to 82, with Shandong retaining 21 of them. Liu emphasized that local companies are now making significant efforts to upgrade their equipment and train personnel. Currently, the total processing capacity of local refineries in Shandong reaches 45 million tons per year. However, the actual processing volumes in 2006 and 2007 were only 21 million and 23 million tons respectively, and this level has remained roughly the same in recent years. "This level of processing is very low," she said. She added that the country allocates less than 2 million tons of crude oil annually to local refineries, so most of their raw materials come from imported fuel oil. Liu also mentioned that CNOOC may sign cooperation agreements with two local companies in Shandong. In January of this year, CNOOC, Shandong Province, and Dongying City signed a strategic cooperation framework agreement, which included plans for deeper collaboration in integrating local refineries. Two companies, Shida Technology and Shandong Hengyuan, are currently making faster progress in negotiations. However, it is still unclear whether the cooperation will succeed. Their combined refinery capacity is over 4 million tons per year. CNOOC has successfully acquired or formed joint ventures with companies such as China Shipping Asphalt Co., Ltd., CNOOC Daxie Petrochemical Co., Ltd., and China National Offshore Oil and Gas (Taizhou) Co., Ltd., with a total refining and chemical capacity of 10.7 million tons per year. However, some companies have not reached agreements, and others that had discussions have already ended due to conflicting interests. A source from a marketing department at a CNOOC-affiliated refinery company said, "Some companies that talked about cooperation have already been terminated because the interests of both sides could not be aligned."

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