OREANDA-NEWS. January 22, 2014. China’s oil refining capacity is expected to reach a surplus of 140 million tons in 2015, and increase to 190 million tons in 2020.

The refining capacity is also expected to overtake the growth of oil product consumption in the country during the same period.

Overcapacity will largely exist in small, local refineries, which suggests the government should approve construction of new refineries and promote the elimination of outdated ones, according to a report released by the China Petroleum and Chemical Industry Federation (CPCIF).

The average annual growth rate of China’s gasoline and diesel consumption is estimated to be 3.4% during the years 2012 to 2015, with gasoline estimated at 5.9% growth and diesel fuel at 2%. The estimates for the next five years are similar–3.6% overall, with gasoline at 5.4% and diesel fuel at 2.5%.

With more and more Chinese people owning cars, China’s gasoline consumption is expected to grow quickly in the next few years. In the meantime, diesel fuel consumption growth is expected to decelerate due to a cooling GDP and efforts to promote cleaner fuel such as LNG.

To handle the demand, in 2012, China’s oil refining capacity was estimated to be 624 million tons, with a surplus of about 74 million tons. Oil refining capacity is expected to increase to 740 million tons by 2015 and 890 million tons by 2020, based on construction plans of the country’s oil refiners.

With a refinery operating rate of 85%, China will need an oil refining capacity of 600 million tons in 2015 and 700 million tons in 2020. As a result, it is estimated that China will have surplus oil refining capacity of 140 million tons in 2015 and 190 million tons in 2020.

Currently, only three Chinese oil refineries have an annual production capacity of more than 20 million tons each, which together account for about 10% of the country’s total oil refining capacity.

Some places in China have too many small-sized oil refineries with an annual capacity of less than 2 million tons. These refineries, with their relatively low competitiveness, operate at less than 35% of their production capacity.

In order to combat the potential overcapacity problem in the oil refining sector, the CPCIF suggested that the government improve access to energy and material consumption, product quality and environmental protection.

The CPCIF also suggested there be standards set on outdated refineries and make regulations and timetables for shutting down these refineries as soon as possible.

The government should postpone the construction or operation of new refineries if market demand is well matched with existing refining capacities, the CPCIF said.