Impact: PetroChina Yunnan Initiated LPG Supply in Southwest China

SCI99 Edit at: 2017/9/5 11:15:02
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PetroChina Yunnan Petrochemical, also known as Yunnan Refining Project, is a super-huge petroleum refining enterprise, which was established on 2005 as a joint venture by China National Petroleum Corporation (PetroChina), Yuntianhua Group and Arabian American Oil Company (Saudi Aramco). The total designed refining capacity is 13 mn t per year. The designed annual product capacity are 2.37 mn t of gasoline, 4.58 mn t of diesel, 567.4kt of kerosene, 198.6kt of polypropylene and 254.3kt of liquefied petroleum gas (LPG).

The refinery initiated test running in early August, and passed the acceptance check successfully. Then, the refinery was put into formal operation in late August, and the products were ready for sales accordingly. According to sources, up to date, the LPG yield approaches 1,000mt per day, and the quality has stabilized already. That means the LPG product is ready for massive supply.

At the meantime, the markets, not only the Yunnan regional market but also surrounding regional markets such as in Guizhou, Guangxi or even Guangdong, seem not ready yet for this new but giant player. In the past, Southwest China had hardly any LPG output, and the resources were mostly delivered from South China and Central China by land or river transport. However, situation changes now.

In the initiation stage of the refinery, the LPG quality was unstable, and the price was low. As time goes by, the product is mature and ready for massive supply, and it is also welcomed by local downstream buyers, considering the short delivery distance, low delivery and storage cost, and high and stable quantity. Even more, those resources will expand to surrounding areas and compete against the old traditional supply source from Guangxi, and it will spell deep impacts on the LPG market structure in southern China.

First, LPG buyers in Yunnan and Guizhou will turn to the new supply and cease the purchase from Guangxi gradually. Importers and sellers in Guangxi will suffer major falls in LPG out-sales, and it is foreseeable the LPG import volume will crush in a short term to fix this problem.

Second, the LPG pricing barycenter will shift to PetroChina Yunnan Petrochemical in succession. Currently, the ex-works price of PetroChina Yunnan Petrochemical is around RMB 3,700/mt, and the end retail prices in Yunnan start to follow this ex-works price as benchmark from late August. Meanwhile, over 1,000mt of LPG cargoes are delivered to Guizhou for sales by Kunlun Energy as heard, and the regional price will also be influenced.

Third, the supply glut of PetroChina Yunnan Petrochemical will drive the refiner and distributors to delivery extra civil-use and industrial-use LPG (C4 raffinate II) to Guangxi. After all, the civil-use LPG demand is Southwest China is limited, and there is no gas deep-processing industry to consume the industrial-use LPG which output is around 500mt per day. Those feed gas resources have no way out but to supply the alkylation units in Guangxi.

In conclusion, the initiation of PetroChina Yunnan Petrochemical brings great changes and challenges to the LPG industry in Southwest China and South China. PetroChina Yunnan Petrochemical, as the only super-huge petroleum refining enterprise in Southwest China, will no doubt become the new barycenter of the petroleum industry in this region and expand its influence to the neighboring regions.

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