China’s Refining Industry:

History and Technology Evolution

Rob Tufts, BRSI Inc., Cochrane Alberta, Canadartufts@brsi-ca.com

+1 403 630-0789

This presentation will highlight:

1. The increased utilization of Residue

Desulphurization Technology (RDS) and

correspondingly the reduced dependency on

Delayed Coking Units (DCU)

2. The role of the small independents refineries

and the potential impact of tighter clean fuel

specifications

Introduction

• Principal at BRSI Inc.

– Company located in Alberta Canada

• Have worked for over 30years in the refining industry

– Specializing in Heavy Oil processing

(CDU - VDU / Delayed Coking / Visbreaking)

• Have provided consulting services around the world

– First project in China was for CNPC Daqing in 2001

– Subsequently have worked in refineries operated by Sinopec / PetroChina / ChemChina

Refining industry can be classified into three categories:

Majors

Sinopec / PetroChina

~65 refineries with 460 – 470mTPA Crude capacity

Intermediates

CNOOC / ChemChina / SinoChem

~30 refineries with 80 – 90mTPA Crude capacity

Independents “Teapot”

100 to 150 refineries with 135mTPA – 200mTPA Crude capacity

Total installed refining capacity: 680 – 760mTPA

Sinopec / PetroChina market share >60%

2014 Refinery Utilization

Major / Intermediates 81%

Teapots 23%

Major and intermediates typically run to a high utilization

• Most Sinopec / PetroChina refineries are integrated with chemical production and run to a high load factor

• Intermediates base loaded for fuels production

Utilization of independents typically very low

• Refineries generally have reduced complexity, poorer energy efficiency and run as swing facilities to meet incremental gasoline / diesel demand

Sinopec / PetroChina import foreign crude from

diversified locations

Individual refinery crude

slate and unit operation LP

optimized for high value

products (chemicals,

gasoline, jet fuel)

Translates to a stable GPC

yield / quality

Traditionally the independent refiners processed local crudes / bunkers / fuel oil.

• Ability to import crude oil restricted

• Operated only when margins were favourable

• Led to a variable yield / quality of GPC

Limitations on crude imports are easing based on meeting qualifying conditions

• Imported Crude displaces bunkers/fuel oil

• Refinery feed slate typically sourced from the cheapest available feedstocks

• Variability of GPC yield / quality remains high

Installed Coking Capacity

Throughput,

mTPA

GPC Yield,

mTPA

Market Share

Major &

Intermediates

80 – 90 21 – 23 70%

Independents 30 – 50 7 – 13 30%

Total 110 – 140 28 – 36

The base load GPC variability (amount / quality) should be no different than that of Western Refineries

Incremental GPC from independents variable (amount / quality)

The residue cat cracker (RFCC) is at the centre of

the high conversion gasoline based refinery

VDU RFCC

CDU

DCU Required Coker Capacity

(wt% of Crude)

Typical Crude ~20wt%

Heavy Crude 30 – 35%

Maximum heavy feed to DCU with

incremental residue to RFCC to meet

required Crude run

Gasoline and Diesel Sulphur Specification

Current China IV New China V Implementation

Gasoline 50wppm max 10wppm max Jan 2017

Diesel 50wppm max 10wppm max Jan 2017

General Diesel 350wppm max 50wppm max July 2017

10wppm max Jan 2018

GPC Policy StatementImpending restrictions on GPC Coke >3% Sulphur

• No importation allowed

• Domestic production permitted

• Buyers/end users require an environmental compliance certificate

Market appears to be responding as if implemented

The Challenging Refining Environment

• Over installed refining capacity

– Postponed projects represent ~15% of current

capacity

• Falling diesel demand / increasing gasoline

demand

• Increased hydrotreating capacity required to

meet clean fuels specification

• Potential for refinery closures in

environmentally sensitive regions

Refining Trends

• New CDU / VDU designed to world scale of

10mTPA (older units 2-5mTPA)

• Less focus on very heavy /sour crudes in

favour of slightly lighter/sweeter crudes

– 26 to 32API vs 20 to 22API

• Crude / Vacuum / Coker Units revamped and

designed for maximum liquid yields

• Increasing RDS hydrotreating capacity

Increasing trend to include RDS capacity in

refinery revamps and planned refineries

Half of the installed RDS

capacity is in Coker based

refineries

In a Coking refinery feed to the RDS unit is a blend of atmospheric and vacuum residue

RFCC

CDU

VDU

DCU

RDS

DCU feed rate set to meet crude

run balancing CCR / Metals not

processed in RDS

Revamps have installed RDS unit in parallel to RDS (no examples of Desulphurizing DCU feed)

Inclusion of the RDS unit into the refinery flow

scheme has advantages and disadvantages

• Ability to process heavy crude oil decreases

– So far using fixed bed units, the use of online

catalyst replacement technology would

minimize/eliminate the impact

• Reduces post RFCC treatment required to

meet product specifications

• Improves refinery yield profile (increased high

valued products)

As RDS capacity has been installed in existing coking refineries the following has occurred

• Required coking capacity is reduced

– In facilities with multiple coker units the oldest unit is shut down

• Slightly sweeter / lighter crude processed

• Net GPC production decreases due to the combined impact of reduced coking capacity and the change in crude slate

– 10% to 40% reduction in coking capacity

– GPC Sulphur content decreases

Concluding Remarks

RDS increasingly being used to meet more demanding clean fuels specifications

• Refineries ideally suited for RDS due to RFCC

• Reduces required coking capacity

• Sulphur content of produced GPC reduced

In a refinery with RDS the coker is only required to maintain heavy crude processing flexibility

• New projects will most likely utilize RDS with a smaller coker

– Installed capacity of 10-15% on crude vs 20 – 30%

Concluding Remarks

Pressure to increase refining complexity,

improve efficiency, and produce cleaner fuels

creates environment for rationalization of

independent refineries

• Transition to intermediate status running at a

higher utilization

• Directionally stabilize GPC supply and quality

Concluding Remarks

Domestic demand for GPC>3wt% S linked to

capacity of “compliant” downstream facilities

• Small coking refineries with minimal HTU

capacity will shutdown to balance market

• Low probability that new refineries producing

significant amounts of high S GPC will be built

China’s Refining Industry:

History and Technology Evolution

Rob Tufts, BRSI Inc., Cochrane Alberta, Canadartufts@brsi-ca.com

+1 403 630-0789