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While global demand for crude oil may be cooling down, China appears to be dominating another part of the oil world: refining.
“China has been in the middle of a major expansion boom in the refining sector, and there’s a lot more coming down the pipe,” said Antoine Halff, head of the Oil Industry Markets Division at the International Energy Agency (IEA). “This is a major transformation.”
China's investment in refining infrastructure is unparalleled both at home and in supply-guaranteeing agreements with strategic oil (OPEC) partners such as Saudi Arabia, Nigeria, Venezuela and Brazil.
Halff said the oil refining industry, which helps process and refine crude oil into useful products like gasoline, is experiencing significant change. Refining capacity is expanding much faster than supply is coming from the Organization of the Petroleum Exporting Countries and also is exceeding global demand, he said.
“[The refining industry is] moving from smaller refineries that used to be very close to the immediate market to very large refineries that are increasingly export driven and have the global reach that no longer cater to their immediate surroundings,” Halff said. “Most of this growth is forecast to come from China.”
Although two refinery projects in China have been put on hold in the past two months, Halff still voiced confidence.
“We don’t expect that all the projects that have been approved in China will come to fruition on time,” he said. “Some may be delayed, some may be cancelled, but we generally assume that once a project gets approved it tends to stick.”
Growth in China, as well as in India and the Middle East, poses a challenge to the older refining industries, particularly in Europe where at least 15 refineries have been closed since 2008, Halff said.
All things considered, it certainly suggests that China's influence on OPEC market decisions and on global crude oil prices poises China for energy sufficiency and long-term economic growth.