Sinopec to spend US$4.776 billion a year to improve fuel quality in China

Petrochemical Corp., known as Sinopec Group, is spending around US$4.78 billion a year to improve the quality of its domestic oil products, state television reported.
The group is upgrading desulfurization facilities at its 12 refineries, with the expectation that these facilities will return to operation by the end of the year, as reported by China Central Television, citing Sinopec Chairman Fu Chengyu.
Fu’s comments come after Beijing has seen air pollution reach hazardous levels recently, which prompted calls for the introduction of tighter fuel specifications to be accelerated. China has set a deadline for the National 4 standard for gasoline to be adopted nationwide by January 2014, and for diesel by the end of 2014.
On February 1, 2013, Beijing became the first and only city in China to adopt the National 5 standard where sulfur levels have to be below 10 parts per million (ppm). Other eastern areas such as Shanghai, Jiangsu and the Pearl River Delta use National 4 standard fuels while the rest of the country still adheres to National 3 specifications, which allow for sulfur content as high as 150 ppm. By comparison, the maximum sulfur content in the European Union is 10 ppm.
All of Sinopec’s oil products will meet the National 4 standard by 2014, CCTV said. At present, just some of its refineries are capable of making such products. National 4 is equivalent to Euro 4 standards, allowing sulfur content of up to 50 ppm.
In its report on the environment released in November 2012, Sinopec said it had spent US$78.3 million from 2005-2010 to upgrade its refineries to produce National 3 standard fuels. In 2012, it completed diesel upgrading projects across its refineries and started supplying National 5 diesel fuel to Beijing. According to Sinopec sources, the company’s major refineries in Zhenhai, Guangzhou, Maoming and Hainan are now able to produce National 4 gasoline.
Sinopec’s rival PetroChina is also preparing for tighter fuel regulations. Its Lanzhou refinery, which already produces National 4 standard fuels, also put on line a new diesel hydrogenation unit last year, according to a refinery source.
“With the added costs [to produce low sulfur fuel] involved, fuel prices will eventually have to rise,” said Yan Shi, energy analyst at UOB-Kay Hian Investment Consulting in Shanghai.
China regulates retail prices of diesel fuel and gasoline, although it has tried to make adjustments to bring prices in line with fluctuations in international crude oil prices.
The last price change was in mid-November 2012, when the NDRC cut gasoline and diesel fuel prices by about 3.5%, in line with falling crude oil prices. (February 4, 2013)