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.