Chin＇s Shandong Teapot Refiners Lag behind The Fuel Upgrade

China's small independent refineries continue to produce lower grade fuels despite a government-mandated shift to tighter specification gasoil and gasoline as they continue to see demand for lower-spec grades and also lack the financial resources to upgrade their plants.

Huifeng is now able to produce Phase IV gasoline and Phase III gasoil after adding some hydrogenation units over the past years.

China's state refiners, led by Sinopec or China Petroleum & Chemical Corp., and PetroChina, have been aggressively upgrading their refineries since 2012 to produce fuels compliant with Phase IV standards. Some of those state-owned refineries have also started producing Phase V compliant gasoline, which caps sulfur at 10 ppm.

Demand for 500 ppm sulfur gasoil now mostly comes from the construction and mining sectors, particularly in the rural parts of the country, refinery sources said.

Teapot refiner Tianhong New Energy, which has a refining capacity of 1.5 million mt/year, says it sells its 500 ppm sulfur gasoline and off-spec gasoil -- that does not even meet Phase II gasoil specifications -- to industrial users and the fishing sector.

Dongying Huasheng, a company in Shandong that does not have a crude distillation unit, plans to commission a 300,000 mt/year gasoil hydrogenation unit in the coming weeks that will enable it to produce Phase III gasoil.

"We will need to purchase off-spec gasoil that is produced out of CDUs as feedstock for our new unit. We aim to produce around 15,000 mt to 20,000 mt of Phase III gasoil every month," a company source said.

（platts.comEdited by Topco)