China's Shandong Yulong Petrochemical on Friday began starting up one of two new 200,000 barrel per day (bpd) crude units in eastern China, sources said, marking the refinery's official launch after four years of construction.
The 400,000-bpd refinery is the only major refinery to come onstream this year in China and also one of the last greenfield plants being built as Beijing broadly caps crude oil refining capacity amid peaking Chinese fuel demand.
Situated on a man-made island in Longkou county of the city of Yantai, Shandong province, Yulong is expected to keep the crude units running through at least the end of this year, said one Shandong-based refinery source briefed on the matter.
The launch, in line with an earlier Reuters report, came as Chinese refinery crude throughput in August fell year on year for the fifth month to levels near two-year lows as demand for diesel declines and gasoline consumption is eroded by a switch to electric vehicles.
"Yulong started up the refinery at the request of the provincial government, although the company itself was concerned with very weak margins in the current market environment," the source said.
A second source familiar with Yulong's operation said the refiner was expected to start up secondary units in the coming days including a reforming unit with a processing capacity of 2.6 million tons per year (tpy) that produces petrochemical feedstocks.
Yulong Petrochemical did not immediately respond to a request for comment.
It may take several months for the refiner to ramp up output to commercial operation levels, sources said, but the timing of the start-up amid weak processing margins means Yulong may lean on cheaper crude oil supplies such as Russian ESPO blend to manage costs.
However, Saudi Arabia could become a potential source of crude oil supply, as state-run Aramco agreed last October under a preliminary deal to acquire a 10% stake in Yulong in exchange for a crude supply deal.
This is one of a string of similar strategic deals the top OPEC producer is lining up with privately controlled Chinese refineries.
The $20 billion Yulong project, comprising a 400,000-bpd crude refinery, a 3 million tpy ethylene complex and a 3 million tpy paraxylene facility, will help upgrade the fragmented refining sector in Shandong, home to scores of smaller independent refiners, known as teapots.
The project is 51% owned by private aluminium smelter Nanshan Group, 46.1% by provincial government-backed Shandong Energy Group and the remainder by two local firms.
