SHANDONG Province has embarked on a plan to shut down capacity of half a million barrels per day shared among small, independent refiners to make way for a giant complex that should spur economic recovery from the coronavirus crisis.

China, the world’s largest oil consumer after the United States, was going ahead with the US$20 billion Yulong Petrochemical complex.

The planned 400,000 barrel-per-day (bpd) refinery and 3 million ton-per-year ethylene plant in Yantai, Shandong, the country’s hub for independent refineries, sometimes referred to as teapot refineries, had long failed to get approval.

The drop in demand because of coronavirus lockdowns, as well as expectations climate concerns will reduce conventional motor fuel use, is likely to increase over-supply in the near term.

But State approval was granted last week for a new mega refining complex, weighted towards petrochemical production whose demand is expected to be relatively robust.

That has prompted Shandong to accelerate a plan dating from 2018 to close 500,000 bpd in capacity over the next two-to-three years, Shandong-based industry officials and consultancies said.

That amounts to 20 percent of Shandong’s capacity, made up of more than 60 small plants.

Wang Zhao, senior analyst with consultancy Sublime Information Group, said Shandong will first target plants of less than 60,000 bpd, especially those with financial losses.

The first closures would include Binyang Ranhua, Zhonghai Jingxi Chemical, Yuhuang Chemical and Jinshi Asphalt, Wang said.

(SD-Agencies)