China’s war on smog is choking Shandong’s oil and chemical industries
Environmental inspectors have ordered the closure of 30 independent oil refineries since mid-July
The government’s crackdown on pollution is choking output of chemicals, fuels and other materials in eastern China’s Shandong province as plants curb or cut operations amid random environmental checks.
Beijing’s clear-sky efforts are not new, but the frequency and duration of recent inspections in the industrial heartland are having a bigger impact on output as small and mid-sized plants come under the same scrutiny earlier focused on large state-owned facilities.
About 30 independent oil refineries in Shandong have been shut since mid-July, plus an unspecified number of chemical plants making propylene oxide (PO)，PVC and rubber tyres have been closed, according to industry sources and market analysts. Unlicensed fuel kiosks have also been removed.
While some of the plants have resumed operations or are hoping to restart later this month, others are less optimistic.
“We were told to prepare to work half a month and be off the other half, and get half our salaries,” said Zhang Yongqiang, a 25-year-old oil depot worker at a 20,000 barrel-per-day (bpd) teapot plant that has been shut for more than two months.
Shandong holds half of China’s capacity for PO, which is used to make elastic automobile parts and requires costly waste water treatment. It also makes nearly half the country’s rubber tyres, which emit hazardous gases during production, said William Chen, a，chemicals expert at consultancy IHS Markit.
Among the plants that have been shutdown are Shenchi Petrochemical, Hengyuan Petrochemical Group, Fuyu Chemical and Aoxing Petrochemical.
The exact amount of production lost is unknown. There is no official information on shutdowns, but refinery sources said wholesale petrol and diesel prices in Shandong rose by five to eight per cent in early September from a month ago, while prices for propylene, an intermediate plastics product, were quoted a third higher than in the same month last year.
PO prices have gained 40 per cent since early this year, triggering higher imports of the chemical, Chen said.
Also, while inspections have mostly hit small fuel blenders and oil refiners of 80,000 bpd or less, their outages are being felt in global markets. Customs data showed China’s August crude oil imports slid to their lowest since January.
Imports of light cycle oil, a refinery by-product similar to diesel, nearly doubled in August to over 500,000 tonnes from earlier this year to fill a diesel supply gap, said two traders involved in the business.
Beijing began sending teams of environmental officials and experts to Shandong at the start of the year, making regular but unscheduled visits since then, said two local refinery sources.
Independent refineries typically close in July for repairs before fuel demand picks up from September, but the frequent visits have kept some plants shut for longer than planned.
The semi-official China Petroleum and Chemical Industry Federation reported last month, citing local media, that provincial inspectors had visited 1,891 plants as of July 19 and that 43 per cent of them had environmental violations.
“In the beginning, the checks by Beijing inspectors were about identifying holes like whether you have a license to operate or if a facility needs emission or safety upgrades ... There were no orders to shut until July,” said a fuel manager with a Dongying refinery.
Dongying, a city of 2.1 million people which is known for its acrid smelling air and cluttered landscape of “nodding donkey” oil wells, is home to nearly 30 refineries and dozens of small chemical plants.
Inspections intensified in July when provincial agents joined the campaign with more detailed examinations that required shutdowns, some for the purpose of pre-empting closure orders by Beijing, a Shandong environmental official said.
Plants hit by accidents during the inspections were ordered to shut for longer.
Aoxing Petrochemical in Dongying was ordered to close for an unspecified period after a leak of hydrogen sulphide in early August killed two people, according to local government reports.
The Ministry of Environmental Protection said this month that China was still facing “huge pressure” to meet politically crucial 2017 air quality targets. The ministry’s plan to cut emissions in 28 cities includes seven in Shandong, with fresh rounds of inspections planned from September.
The shutdowns at some chemical plants may be permanent as upgrade costs would render them unable to compete with imports, Chen said.
“Shandong local refineries’ utilisation ratio will remain medium to low because of the government’s safety checks, [which have been] tightening supplies as demand rises,” said Li Yan of Shandong-based consultancy Longzhong Information Technology.