Hidden forces-China’s crude oil storage market prospect

03/2017

Research Director, ICIS

CONFIDENTIAL & PROPRIETARY. © 2016 ICIS. ICIS is a trading name of C1 Energy Consulting Co., Ltd, a member of the

RELX group.

Li Li

Shining star in global bearish mood

Hidden force: Teapot

refineries

Emerging capacity

Strategic Petroleum Reservation

Overview

Key drivers for appetite of the No.1 crude oil importing giant

4

Crude oil: how’s the appetite?

Bearish factors

Bullish factors

Arbitrage

Hidden force-

Teapot refineries

1

www.icis.com 6

Where have the cargoes headed to?

-

20

40

60

80

100

120

140

Shan

do

ng

Zhe

jiang

Gu

angd

on

g

Liaon

ing

Fujian

He

ilon

gjiang

He

be

i

Xin

jiang

Hain

an

Gu

angxi

Tianjin

Oth

ers

mil mt

Crude oil imports by chinese provinces

2014 2015 2016YTD

What is teapot refineries?

CDU Capacity Distribution of Independent Refineries Average CDU Capacity of Independent Refineries by Region (2015) Unit: '000 bbl/day

Region CDU capacity Share (%) Refinery number Average CDU

Shandong 2,611 63.90% 66 40

Northeast China 334 8.20% 16 21

East China 287 7.00% 13 22

South China 297 7.30% 19 16

North China 237 5.80% 16 15

Northwest China 220 5.40% 6 37

Southwest China 72 1.80% 2 36

Central China 30 0.70% 1 30

Total 4,088 100.00% 139 29

Source: ICIS

www.icis.com 8

Liberalization and new buyers

Over 80% fed by imported crude oil

47%

81%

20%

10%

4%

3%

4%

3%

21%

3%5%

1%

2015 January-July 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fuel oil

Cutback bitumen

Other domestic crude

Government-allocated crude

Offshore crude

Imported crude

Source: ICIS

Feedstock Mix of Shandong independent refiners(2016 VS 2015)

>95%

Crude Imports of Independent Refiners ‘000 tonnes

Refiner Import Quota Imports in 2016 Operating rate

Sinochem Hongrun 5,300 3,361 63%

Dongming Petrochemical 7,500 2,930 39%

Qirun Chemical 2,200 2,125 97%

Shouguangluqing Petrochemical 2,580 2,042 79%

Lijin Petrochemical 3,500 1,511 43%

Wonfull Petrochemical 4,160 1,048 25%

Yatong Petrochemical 2,760 832 30%

Kenli Petrochemical 2,520 814 32%

Chambroad Petrochemicals 3,310 485 15%

Baota Petrochemical 6,160 283 5%

Note: *Includes crude imported under third-party processing trade

Source: ICIS China

Performance in the crude purchase “campaign”

Burst in utilization

Oil majors’ and independent refiners’ operating rates in 2015-2016

0%

20%

40%

60%

80%

2010 2011 2012 2013 2014 2015 2016

Majors Independent refiners

Source: ICIS

Oil majors’ and independent refiners’ operating rates in 2010-2015

30%

35%

40%

45%

50%

55%

60%

65%

01

-20

15

01

-20

15

02

-20

15

03

-20

15

04

-20

15

04

-20

15

05

-20

15

06

-20

15

06

-20

15

07

-20

15

08

-20

15

08

-20

15

09

-20

15

10

-20

15

10

-20

15

11

-20

15

12

-20

15

12

-20

15

2015 2016

Logistic as a big bottleneck and ambitious investment plan

Dongming 180KBD,

10 mil t/y

Hongrun

74KBD,20 mil t/y

Huaxing

170KBD,20 mil t/y

Zhenghe

170KBD,20 mil t/y

Changyi

160KBD,13 mil t/y

Linyi

Zaozhuang

Rizhao

Qingdao

WeihaiYantai

Jining

Heze

Liaocheng

DezhouBinzhou

Jinan

Taian

Laiwu

Zibo

Weifang

Dongying

Coastal inventory peakedCrude inventory of independent refiners in Shandong

0

0.5

1

1.5

2

2.5

01

-20

15

02

-20

15

03

-20

15

04

-20

15

05

-20

15

06

-20

15

07

-20

15

08

-20

15

09

-20

15

10

-20

15

11

-20

15

12

-20

15

01

-20

16

02

-20

16

03

-20

16

04

-20

16

05

-20

16

06

-20

16

07

-20

16

08

-20

16

09

-20

16

10

-20

16

11

-20

16

12

-20

16

01

-20

17

02

-20

17

03

-20

17

mil mt

Strategic

reservation

2

15

90 days

At least 300 mil Bbls

Nearly 60 days

Dynamic Target

Start from 2006

End by 2020

16

SPR-government blueprint

Zhoushan-I-II

Qingdao-I-II

Dalian

Dushanzi

Lanzhou

Huizhou

Jinzhou

Zhanjiang

Jintan?

Yangpu?

Caofeidian?

Tianjin

Hainan

Anhui

Jilin

Liaoning

Shandong

Fujian

Hubei

Hunan

GuangdongGuangxi

Shanghai

Henan

Shanxi

Inner Mongolia

Shaanxi

Ningxia

Gansu

Qinghai

SichuanTibet

Xinjiang

Jiangsu

Zhejiang

Guizhou

Chongqing

Yunnan

Heilongjiang

Jiangxi

Hebei

Beijing

Tianjin

Taiwan

Ningbo

Anqing

Jiujiang

Rizhao

Dongying

HuangdaoJi’nan

Jingmen

Qianjiang

Weigang

Xianyang

17

Huge intake power but limited ownership

TieshangangZhanjiang

Daqing

Dalian

Harbin

ChangchunJilin

Tieling

QinhuangdaoFushun

Huludao

Molhe

Changqing

Hohhot

CangzhouGaobeididan

Shijiazhuang

Nanjing

Urumchi

Karamay

Dushanzi

Tazhong

Lianyungang

Yizheng

Changling

Dongming

WeifangLinyi

Lanzhou

Chengdu

Alashankou

Germu

Shanshan

Huatugou

Lun'nanKorla

Yinchuan

Fort HuianShikong

Songyuan

Shenyang

Caofeidian

Emerging

Capacity

3

Oversupplied refined products and expansion uncertainty

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

20

10

20

12

20

14

20

16

E

20

18

E

20

20

E

20

22

E

20

24

E

20

26

E

20

28

E

20

30

E

20

32

E

20

34

E

20

36

E

20

38

E

20

40

E

Bitumen Petcoke Fuel oil LPG

Jetfuel Gasoline 97# Gasoline93# Gasoil

Unit: 000,tonne(千吨)

Source: ICIS

38

390230

640

-100 0

520

220

560

220

640

422

292

84

350272

60

120

120

60

-200

0

200

400

600

800

1,000

2011

2012

2013

2014

2015

2016

E

2017

E

2018

E

2019

E

2020

E

'000 bbl/day

Majors' YoY Increase Independents' YoY Increase

Refining Capacity Expansion in China (2011-2020E)

Future blueprint of China refining and storage industry

Caojing, Shanghai

Caojing refining & chemical complex 20m

tonnes/year

Huizhou, Guangdong

CNOOC’s Huizhou 2nd phase project, 10m

tonnes/year

Lianyungang, Jiangsu

Shenghong Petrochemical 16m tonnes/year

Ningbo, Zhejiang

ZRCC 2nd phase project, 15m tonnes/year

Changxing island, Dalian

Hengli Petrochemical 20m tonnes/year

Gulei, Zhangzhou

Gulei refining project, 16m tonnes/year

Caofeidian, Hebei

Qianhai Petrochemical

15m tonnes/year

Sinopec’s Maoming-Zhanjiang

petrochemical base？

Sinopec’s East China

petrochemical base

Liaodongwan，Liaoning？Panjin Petrochemical

Rizhao，Shandong？Indepedents

Overview

Questions?

电话: 4007-200-222

www.icis-china.com

More question please contactLi Li ,Head of Research+86 133-8009-5076 lili@icis-china.com

ICIS China Research team •Refining industry•Petrochemical industry (Olefin, aromatics)•Feedstock (Naphtha, condensate, propane, natural gas, coal)•Fuels (on-road, industrial)•Logistics and supply chain management