Sinopec Luoyang plans to increase oil processing

Mar 06, 2012 12:00 AM

China Petroleum and Chemical, the nation’s biggest refiner, plans to boost oil-processing volume at its Luoyang refinery by 21 % this year. The plant in the central Henan province will process 8 mm tons of crude, up from 6.6 mm tons in 2011, when the refinery was shut for 45 days for maintenance, said Wei Wenbo, president of the facility.
The refinery, which has no maintenance scheduled until 2016, relies on imported crude from West and North Africa, the Middle East and South America for half its needs. The other half comes mainly from the western parts of China.

Luoyang lost $ 10 on every barrel of oil it processed in 2011, resulting in an annual net loss of $ 410 mm, Wei said. Refining losses were yuan 2.9 bn, while the plant had a profit of 300 mm on petrochemicals. Sales were yuan 46.8 last year and may reach yuan 52 bn this year, he said.
“Under the current system in China, it’s impossible to make profits from refining,” Wei said. Luoyang also has ‘geographical disadvantages’ because it’s too far from oil supplies, he said, referring to Xinjiang fields to its west and oil ports on the eastern seaboard.

The Luoyang plant has crude-distillation capacity of 8 mm tons a year and a splitter capable of processing 1.5 mm tons of condensate annually, he said.
The plant’s refining costs are yuan 200 a ton more than the China Petroleum’s average, Wei said.

State-capped prices
Refiners in China face pressure on profit because they have to sell fuel at state-capped prices. Under the current pricing mechanism, the government may adjust domestic retail fuel rates when the 22-day moving average of three crude grades comprising Brent, Dubai and Indonesia’s Cinta changes more than 4 % from the last price adjustment.
The government should adjust pump prices by taking global crude prices into account, he said.

It should also consider transportation fees and a yuan 200 a ton margin to cover refining costs.
“That’ll bring margins to zero,” Wei said. “We’re not even talking about profits here.”

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