China would add 180,000 barrels per day (bpd) of crude refining capacity next year, but this would be too small to meet demand growth and might prompt higher imports of diesel and fuel oil, traders and analysts said.

The world’s No. 2 oil consumer is planning a much bigger round of expansion in 2006-2009 with an additional capacity of up to 1.27 million bpd, or 20 percent of its current total.

The 180,000-bpd addition next year in Shanghai and Guangdong would meet less than half the country’s total oil demand increase of 360,000 bpd forecast by the International Energy Agency (IEA).

The new units came on top of expansions of a similar scale this year at Zhenhai Refining & Chemical Co., Jinling Refinery and West Pacific Petrochemical Co.

“The diesel shortfall will increase drastically. The increase in refining capacity would not be big enough to catch up with the demand,” said Yan Kefeng, senior oil analyst at Cambridge Energy Research Associates from Beijing.

China’s plans to rein in blistering economic growth and to ease power shortages is expected to moderate Chinese oil demand from this year’s double-digit rally, but a construction boom and bustling transport sector would continue to drive consumption.

Industry sources estimated China might need to import 4-6 million tons of diesel in 2005, sharply above this year’s estimated imports at 2.45 million tons.

China, which is already importing crude at a record 2.5 million bpd and pumping near full throttle, is traditionally long on gasoline and short on diesel and fuel oil.

Sources expected China’s fuel oil imports to grow further as refineries, especially those owned by small independent firms, cracked more heavy residue fuel into distillates.

China, Asia’s top importer of fuel oil, is taking in almost 30 million tons of the heavy refined product this year.

While IEA expected China’s oil demand to rise 5.7 percent next year, or 360,000 bpd, off this year’s 14.7 percent, Chinese industry officials have a more bullish view.

Oil officials expect consumption of refined oil products — gasoline, diesel and kerosene — to grow 8-9 percent to 170 million tons in 2005, compared with a 19 percent surge this year, official media reported last week.

State refiners Sinopec Corp. and PetroChina were also on track to add secondary units — mostly hydrocrackers and cokers — to meet cleaner fuel standards and boost output of more valuable transportation fuels at the expense of heavy residues.

The two refining giants have built up a total of about 60 million tons per year (1.2 million bpd) in crude distillation units to process cheaper, high sulphur crude, and have been upgrading its secondary units to match these basic capacity.

Apart from bridging a widening gap in diesel supply, the additional capacity would be used to produce naphtha to feed a string of new petrochemical complexes.

China will start operating 1.5 million tons per year of new ethylene capacity by June 2005 in Shanghai and Nanjing, and is set to add 800,000 tons per year by the end of next year in Guangdong’s Huizhou City.

(Xinhua News Agency December 23, 2004)