China's recent expansion of its refining capacity, notably with facilities like Yulong Petrochemical and PetroChina's Jieyang refinery, has led to a significant increase in domestic production of refined oil products. However, this surge in production coincides with a deceleration in domestic demand growth.

Domestic Demand Trends

Historically, China has been a major driver of global oil demand growth, accounting for 50% of the increase between 2000 and 2023. However, recent data indicates a slowdown. In 2024, China's oil demand grew modestly by 1%. This deceleration is attributed to factors such as the country's economic structural transformation and the rapid rise of renewable energy sources.

China is still by far the world's largest importer of oil. Buiding new refineries takes a large investment, that will take many years to turn profitable. China is investing for the future. A future where they fully expect to be using oil as a substantial part of their energy package.

What would happen if their domestic consumption drops quicker than expected?

Potential Export Markets

To manage the potential future oversupply resulting from increased production and slowing domestic demand, China may look to export refined products to various regions:

Asia and Africa: These regions have been traditional markets for Chinese refined products. Given their growing energy needs, they could absorb additional supplies.

India: As a rapidly developing economy with increasing energy consumption, India presents a viable market for Chinese exports.

Challenges in Western Markets

While Europe and the North America are substantial consumers of refined products, several factors may limit China's ability to penetrate these markets:

Trade Policies and Tariffs: Recent trade tensions have led to the imposition of tariffs on various goods. For instance, China imposed retaliatory tariffs on $14 billion worth of U.S. goods, including energy products, in response to U.S. tariffs on Chinese goods. Such measures can hinder the competitiveness of Chinese refined products in these markets.

Export Tax Rebate Adjustments: Effective December 1, 2024, China reduced the export tax rebate for refined oil products from 13% to 9%. This policy change increases the cost of exporting, potentially reducing the attractiveness of Chinese products abroad.

Environmental Regulations: Western markets often have stringent environmental standards. Chinese refineries would need to ensure their products meet these regulations, which could require additional processing and costs.

Strategic Considerations

China's approach to managing its refined product exports is influenced by both economic and environmental objectives:

Domestic Policy Shifts: China has been adjusting its export quotas and tax policies to balance economic growth with environmental goals. For example, efforts to limit oil product exports have accelerated as part of the country's net-zero ambitions, aiming to reduce exports of certain transport fuels earlier than the initial 2025 target.

Global Market Dynamics: The global refining landscape has experienced shifts due to various factors, including the COVID-19 pandemic and geopolitical events. China's role in this context is pivotal, as its export strategies can significantly influence global supply and refining margins.

Other Recent Chinese Refinery Developements

CNOOC Daxie Refinery Expansion: In March 2025, China National Offshore Oil Company (CNOOC) completed a $2.74 billion expansion of its Daxie refinery in Ningbo. This upgrade added a new 120,000 barrels-per-day (bpd) crude unit, increasing the plant's capacity by 50% to 240,000 bpd.

Fujian Petrochemical Industrial Group: In November 2024, Sinopec Corp and Saudi Aramco commenced construction of a $10 billion refinery and petrochemical complex in Fujian province. This complex is designed to process 16 million metric tons per year (approximately 320,000 bpd) and is expected to be operational by 2030.

These projects highlight China's ongoing efforts to expand and modernize its refining capacity in recent years.

Perspective

The combined output of China's Yulong Petrochemical and Jieyang refineries is approximately 800,000 barrels per day. For context in 2024:

• Netherlands: Consumed about 850,000 barrels per day.

• Italy: Consumed approximately 1.2 million barrels per day.

• Australia: Consumed around 1 million barrels per day.

Therefore, the combined output of these two new Chinese refineries alone is roughly equivalent to the total oil consumption of the Netherlands and a large proportion of the Australian or Italian consumption.

While a 2% rise in consumption in China may not sound too troubling, compared to other countries, it is still a very significant increase that will effect world markets.

In summary, while China's increased refining capacity may in future years lead to an oversupply of refined products domestically, exporting this surplus is a logical strategy. However, geopolitical tensions, trade policies, and environmental considerations present challenges, particularly in Western markets. Consequently, China may focus on strengthening its presence in traditional markets across Asia and Africa, while navigating the complexities of accessing markets in Europe and the Americas.

About The Author
Richard Johnson
Chewells Contributor

Richard is one of our main oil industry contributors. He likes fast cars, motor boats and... »

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