The intent of this study was to explore China’s refining options in light of changing gasoline and diesel fuel specifications.

A key hypothesis of this study was that, although Chinese refining has expanded enormously and has many plans on the books for continued investment, the current and planned refinery configuration would be insufficient to meet growing domestic demand for EURO-style fuels. To test this hypothesis, the team built and employed a linear program model of the Chinese refining sector and used scenario analysis to test the ability of the Chinese refining sector to produce fuels of EURO 2, 3, 4 and 5 standards in 2005, 2008 and 2010. Twelve scenarios were developed which varied by year, fuel quality and fuel volume. The model was given the option of building refinery technologies to meet the specifications, with input in Chinese demand by fuel type and Chinese capital costs provided by CPCC.

The study allocated capital costs to gasoline and diesel, and calculated that reformulating diesel in the year 2010 would add around 3.2 cents per gallon (0.85 cents per liter) capital cost to the refining sector, rising to around 3.7 cents per gallon (0.98 cents per liter) under the EURO 5 scenario. Gasoline costs were around 1.5 cents per gallon (0.40 cents per liter) across the board. In general, the results showed some cost savings when China’s major metropolitan areas went to the new specifications first and rural areas followed, but the differences were not huge.

In summary, the study noted that the Chinese refining industry had already undergone a major build-up program, and additional investments are continually taking place. Yet the investments made will not be sufficient to allow the industry to meet demand for higher-quality EURO fuels. Technologically, it is possible for Chinese refiners to produce EURO standard fuels, yet economically and logistically it will yet prove a challenge. For example, building a million barrel per day of heavy feed hydroprocessing would be a Herculean labour by any standard, and the total equipment capital costs in the scenarios of 2010 were calculated at around US$2.3 million per day.

Excerpt from the Fuel Quality Strategies Training Manual - Module 2

View the whole document at http://china.lbl.gov/pubs/china_refining_study_final.pdf