October 28, 2024 [Reuters]- PetroChina is set to shut its largest domestic oil refinery around mid-2025, sources said, the country’s first major closure at a state-run plant and part of a long-mooted project to replace it with a smaller facility at a new site.

The company will shut the remaining portion of the Dalian Petrochemical plant, with a total capacity of 410,000 barrels per day (bpd), that it was still operating in the northeastern Chinese city, said five sources with knowledge of the matter. It previously closed about 210,000 bpd of capacity beginning in October 2023, said the sources, declining to be named as the matter is not public.

Dalian represents 3% of China’s refinery capacity and shutting the site should cut into the country’s world-leading crude imports. The closure follows refiners’ struggle with overcapacity and weakened fuel demand from slowing economic growth and the electrification of the country’s car fleet.

The closures also align with Beijing’s policy to cap the size of the industry to curb greenhouse gas emissions and manage industry overcapacity.

Shutting the plant is part of a long-proposed plan pushed by Dalian to relocate the refinery, which is in a densely populated area near downtown, after several deadly accidents including a major oil spill in 2010, an explosion in 2013 and a fire in 2017, the sources said.

PetroChina will re-allocate crude oil from Dalian to other subsidiary plants in northeast China, such as WEPEC, which is also in the city, and nearby Jinzhou, raising operation levels there to compensate for Dalian’s cuts, said two of the sources.

Dalian Petrochemical mainly processed Russia’s ESPO crude from Siberian fields that reaches Dalian via pipelines and Daqing from the country’s flagship field in northeast China.

NEW COMPLEX

Under a framework agreement announced by Dalian authorities in November 2022, PetroChina parent CNPC agreed to build a new 70 billion yuan ($9.84 billion) refinery and chemical complex on Changxing island, about two hours’ drive from downtown Dalian. The new project would encompass a 200,000 bpd crude refinery, which is half the current plant’s capacity, and a 1.2 million ton-per-year ethylene complex, Dalian’s government said at the time.

However, the project remains at a pre-feasibility stage and PetroChina has not taken a final investment decision, said two of the sources.

High construction costs and a global petrochemical supply overhang following China’s investments in the sector over the past decade are among the concerns PetroChina is weighing for the new site, said a third person familiar with its plans.

Once PetroChina’s cash cow, the Dalian plant has faced competition from newer and more sophisticated plants such as privately controlled Hengli Petrochemical’s 400,000-bpd refinery that opened in late 2018 on Changxing island.

PetroChina earlier this month shut a 90,000-bpd crude distillation unit (CDU) at Dalian, the sources said, which followed the closure of a separate 120,000-bpd CDU in October 2023.