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China Investing $3B to Up Capacity for High-Sulfur Crudes

19 June 2005

Chinaarabia_crude_price

Bloomberg. China, the world’s second-biggest oil consumer, plans to spend $3 billion on refinery units capable of processing lower-quality, high-sulfur (“sour”) crude oil from the Middle East. In return, the country hopes to be able to cut its current annual oil import bill by as much as 20%.

Oil higher in sulfur content is less desirable for automotive fuel, and is, accordingly, priced lower on the market. The chart at right plots the 10 June sales price of just a handful of crudes on the world market. Saudi Heavy carried a 20% discount compared to the sweet, light oil from China’s Daqing field—which is declining.

Saudi Oil Minister Ali al-Naimi last week said oil prices may stay high until consuming countries build more refineries to absorb the kingdom’s surplus sour crude.

“You have no option but to invest because of the incremental growth in heavy crude supply,” said Colin Tang, head of energy trading at Calyon SA’s Singapore unit.

China’s oil demand last year grew six times faster than in the U.S., and a lack of refining units to increase the yield of cleaner-burning fuels from processing high-sulfur, crude oil helped to push prices to records.

New sources of oil supply are heavier varieties, which make up about 70 percent of global oil output, according to data compiled by Eni SpA in June 2004.

China Petroleum & Chemical, or Sinopec, will boost imports of high-sulfur crude this year by 23 percent to 34 million metric tons, the Chinese State Council’s State Assets Supervision and Administration Commission said on April 13. Sinopec bought 27.64 million tons of high-sulfur crude oil last year.

In the first quarter, Sinopec processed 28 percent more high-sulfur crude oil from a year ago, he said. Sinopec’s Qingdao refinery, which will start operations by 2007, will process only high-sulfur crude.

The US faces a similar situation in lacking capability to accept more lower-quality oil for refining into fuels.

June 19, 2005 in China, Fuels, Middle East, Oil | Permalink | Comments (3) | TrackBack (0)

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Question regarding oil quality:

Is the oil burned in power plants (No. 6 heating oil, IIRC) a lower quality crude? How about home heating oil? In other words, is the oil used in electricity generation and heating directly competing with the oil used in roadway transportation? Are they indirect substitutes -- that is, could you use "power plant oil" to make gasoline, but with a more expensive refining process?

Anybody got some links? I've been wanting to read about this for a long time now, but haven't found a good source yet. Thanks!

Crude oil is a very complex and varied mix of different hydrocarbon molecules.

Refining is a process (basically distillation) that first separates a given batch of crude oil into fractions—the different categories of its component hydrocarbons.

Home heating oil and gasoline, to your question, come from the same batch of crude. The quality and nature of the crude determines how much is a “lighter” product (ending up as LPG, naptha and gasoline) and how much is heavier (heavy oil, residuum that is used for coking).

Refiners can, however, take the heavy output from the first step, and further process it into lighter products. Those extra steps cost more.

The ideal crude for refiners—since most of it ends up in transportation—is light and sweet, and easily processed into gasoline. Even that light, sweet crude, however, produces heavier products, just less of them.

The EIA provides a very good overview of the refining process in general (along with helpful diagrams and charts) and US and world capacity here.

That resource also links to other sources for refining information and data.

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