CHINESE PETROLEUM REFINERY MODERNIZATION: DEPENDING ON WESTERN TECHNOLOGY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88T01235R000100070001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: January 19, 2012
• Sequence Number: 1
• Publication Date: September 1, 1987
• Content Type: REPORT

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Directorate of
Intelligence
Western Technology
Chinese Petroleum Refinery
Modernization: Depending on
SW 87-10043X
September
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Directorate of
Intelligence
Western Technology
Chinese Petroleum Refinery
Modernization: Depending on
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Office of Scientific and Weapons
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Research
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Comments and queries are
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welcome and may be addressed to the Chief,
Science and Technolojzy Division, OSWR,
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Secret
SW 87-10043X
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Western Technology
Chinese Petroleum Refinery
Modernization: Depending on
Key Judgments China is relying heavily on Western technology to expand its oil refining
Information available capability. In the long term, the Chinese seek to meet the energy
as of 1 June 1987 requirements of an ambitious modernization program. More immediately,
was used in this report.
however, they seek to earn foreign currency by exporting petroleum
products to the West.
Expanding energy supplies will be critical for the success of China's
national modernization effort. We judge, however, that the Chinese may
not meet their refining needs by using indigenous technology. China is
looking to Western suppliers to build the more sophisticated processing
units that can convert China's unusually heavy crude oils into valuable and
exportable products.
with China's production and import of motor vehicles.
The refinery expansion and upgrading now under way is enabling China to
substantially increase its output of gasoline and other valuable light
products. By 1990, China will have doubled its 1978 capacity for light
products through a program of construction and equipment acquisition that
would cost $3-4 billion in the United States. This program has already
resulted in increased gasoline production and enhanced feedstocks to
China's chemical industry, and will probably be successful in keeping pace
The heavy, waxy quality of Chinese crude is posing problems for refiners.
The Chinese lack the best technology for the secondary refining steps that
crack the heavy constituents of crude. As a result, a large portion of their
refinery output remains as heavy fuel oil. To increase future production of
lighter products, such as gasoline and aviation fuel, China has chosen not
to copy existing refineries and process a greater volume of crude-which
would leave less crude available for direct sales. Rather, China has chosen
to build more secondary refining facilities to refine each barrel of crude
more completely.
products.
Complicating their refining problem further, the quality of crude oil
entering China's refineries is declining. Falling output of heavy oil from the
Daqing oilfield is being offset by increasing production of even heavier
crude from the Shengli oilfield. China must therefore improve or expand
its refineries simply to maintain its current production level of light
Secret
SW 87-10043X
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The Chinese will need Western help in two forms to meet their refining
requirements. First, China needs secondary processing units-catalytic
crackers, alkylation units, hydrocrackers, and hydrotreaters. These units
will allow refiners to convert the heavy components of crude oil into light
products. China's copies of US technology from the 1950s are no longer
adequate. China is also purchasing technology for making high-octane
gasoline for domestic use and lead-free gasoline for export to the United
States. Second, the Chinese will require process control technology and
operational know-how. Better process control will be especially critical for
making exportable products that meet foreign product specifications.
Better operational know-how may not be essential but would significantly
improve reliability and overall efficiency in China's refineries.
Reliance on Western assistance will continue as China modernizes its
refining industry, at least through the mid-1990s. Because of the central
role of energy in China's national modernization effort and the importance
of oil for export, this dependence will probably remain among the
important elements of China's overall technology acquisitions.
The impact on US interests of China's efforts to upgrade its refineries will
be primarily commercial. Orders for process equipment and technology
represent income for Western firms in the near term, and Chinese exports
of refined products and, eventually, process equipment represent likely
economic competition in the late 1990s and beyond. Indirectly, the
progress of China's refinery expansion program will also have political and
military implications, for it fundamentally affects China's basic industrial
growth and war-fighting capability.
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Contents
Key Judgments
Refining Technologies
Secondary Processes
Fluidized-Bed Catalytic Cracking
2
Hydrocracking and Hydrotreating
Catalytic Reforming
5
Alkylation and Other Octane Enhancement Processes
7
Chinese Design and Construction Capabilities
8
Improving Refinery Efficiency
10
Process Control Technology
11
Implications
12
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Chinese Petroleum Refinery
Modernization: Depending on
Western Technology
refineries and the major consumer centers.
China intends to become a modern industrialized
state with commensurate economic, military, and
diplomatic strength. Because of its size and extensive
resources, China can potentially become a major
global power, but the obstacles to industrialization are
formidable. The problems range from inadequate
education and transportation to party politics. Energy
production is essential for China's industrialization.
For example, higher production of motor vehicles is
planned both as a driver of broad industrial develop-
ment and as a critical element in improving transpor-
tation. For these plans to succeed, China will need
energy for new industrial plants and fuel for a fleet of
motor vehicles that the Chinese hope to double be-
tween 1986 and 1990 and double again by the end of
the century. Petroleum refining capacity must be
expanded to meet these requirements. Figure 1 shows
the locations of China's major refineries and their
capacities in 1985. China's goal for the Seventh Five-
Year Plan is to expand refining capacity 30 percent,
to about 130 million metric tons per year, by 1990. In
the course of this expansion, China hopes to rectify
the large disparity between the locations of its
In addition to satisfying future domestic energy re-
quirements, energy resources are one of China's most
important exportable commodities. Crude oil and
refined products are exported to earn the foreign
currency essential for buying the high-technology
imports that are needed throughout Chinese indus-
tries. In 1984, China's petroleum exports earned
nearly $5 billion-a fifth of its total export earnings.
Exports of crude oil to the United States increased
from 1.1 million metric tons in 1984 to 3.9 million
metric tons in 1985. Exports of Chinese gasoline to
the United States, on the other hand, fell from about
1.3 to 1.1 million metric tons per year in the same
period-the result of decreasing US demand for
China's leaded fuel. Because of China's hard currency
requirements, plans for the future expansion of energy
supplies will have to include trade-offs between satis-
fying domestic needs and exporting to earn foreign
currency. We see evidence of the pressure to export in
China's efforts to produce unleaded gasoline, which is
aimed at sales to the United States. The Chinese
realize that they can earn more foreign currency by
exporting refined products rather than unrefined
crude oil.
This paper assesses the changes occurring in Chinese
petroleum refining and gauges the importance to
China of technology acquired from the West.F_
Refining Technologies
At least 75 percent of China's crude oil distillation
capacity is based on 1950s US technology copied from
a 34,000-barrel-per-day (b/d), Esso-designed unit at
the Nico Lopez refinery in Cuba. The Chinese have
scaled up the distillation units to a standard capacity
of 50,000 b/d. They construct large refineries or
expand existing refineries by building more standard
units. China has not yet achieved the economic bene-
fits of scaling further to larger (100,000 to 200,000
b/d) crude oil distillation units. We do not know what
hinders the Chinese in this area, but their present
distillation technology seems adequate for their needs.
China's key shortfalls are in the technologies for
converting heavy streams from the distillation process
into useful products. Figure 2 shows the processes
involved in the conversion of crude oil into useful
products. The first step, distillation, separates the
crude oil into streams of naturally occurring gasoline,
kerosene, and diesel fuel and into large streams of
heavier oils that are the feedstocks for the secondary
processing units of the refinery. These secondary
refining technologies are discussed in the following
section.
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Secondary Processes
Fluidized-Bed Catalytic Cracking. Before 1970,
many Chinese refineries were fractionation-only in-
stallations, separating the crude oil into small quanti-
ties of naturally occurring light fuels and a preponder-
ance of less useful, heavy fuel oil
most of the older refineries have since
installed fluidized-bed catalytic cracking (FCC) units,
now the most common secondary processing unit in
Chinese petroleum refineries. All of the FCC units
constructed in China appear to be copies of an Esso-
designed unit using 1950s US technology. The stan-
dard Chinese versions of these units have a feed
capacity of 12,000 b/d, but units with capacities of
24,000 b/d have also been constructed.
In six of their 32 known FCC units, the Chinese have
tried to use riser-cracking technology-a modification
that exploits the more active properties of synthetic
zeolite catalysts. The switchover to riser cracking
occurred in the West about 1970.
The Chinese produce all the catalysts used in their
FCC units. Contrary to Chinese claims in open
literature, we do not believe that they are satisfied
with these catalysts. Between 1980 and 1982, the
Chinese conducted long negotiations to obtain the
rights to produce a Western cracking catalyst. The
negotiations failed
In 1985, China for the first time turned to the West
for direct purchase of catalytic cracking technology.
In October 1985, the Chinese contracted with a US
firm for a new FCC process that accepts as feed the
heaviest portion of the crude oil-literally that at the
bottom of the barrel. The US firm developed this
process because of the worldwide trend toward less
direct burning of heavy oil and the corresponding
need to refine it further. The technology is very new;
only two or three US refineries employ it.
The Chinese will rebuild two FCC units, at the
Zhenhai and Wuhan refineries, to accept the US
process. The units will probably be operational by the
fall of 1987. Three new FCC units will be built, at the
Guangzhou, Changling, and Nanjing refineries, and
are scheduled to come on line in the summer of 1988.
in November 1986, the
Chinese also concluded a contract for eight riser-
cracking FCC units of French design. The units will
each have a capacity of 24,000 b/d and will reported-
ly use a Chinese-made zeolite catalyst. The French
firm Total will provide the process technology and the
basic engineering design, and the Chinese will do the
detailed engineering and construction.
Hydrocracking and Hydrotreating. Hydrocracking is
catalytic cracking in the presence of hydrogen gas.
Hydrocracking units can process a wide variety of
heavy feedstocks and are attractive to refiners be-
cause adjustments in the feedstock and operating
conditions (such as temperature and pressure of the
unit) can change the relative amounts of gasoline,
kerosene, or diesel fuel produced. Because of this
versatility, hydrocrackers are the best units for alter-
ing the product mix of a refinery. Hydrocrackers are
unique in that they upgrade all feedstocks into more
valuable, lighter products without depositing much
carbon on the catalyst or producing heavy streams.
This process is of special interest to the Chinese
because it can substantially upgrade their abundant
heavy feedstocks.
China has purchased four US-designed hydro-
crackers, but construction and startup delays have
hampered completion of these units. As of January
1986, only the hydrocracker in the Maoming refinery
was operating at full capacity. The delays have been
due to the shortage of funds to pay foreign contrac-
tors, poor Chinese construction capabilities, and even
a shortage of feedstock. Such delays would be highly
unusual in US refineries. A unit at the Nanjing
refinery was purchased in 1979 but was mothballed in
1981. The Chinese claim that it was started up in
October 1984, but whether it operates at design
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Figure 2
Processes Involved in Converting Crude
Oil Into Useful Products
Crude oil distillation is the initial process that separates the
desirable components that occur naturally in crude oil.
Secondary processes follow, mainly to break up, or "crack,"
the remaining heavy molecules into useful products. Other
secondary units (catalytic reformers and alkylation units) act
to improve the octane quality of the gasoline.
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for new or upgraded refineries.
A similar process, but on a smaller scale than hydro-
cracking, is an operation known as hydrotreating.
Hydrotreaters are small units that remove nitrogen,
sulfur, and metals from refinery streams by mild
hydrogenation. Hydrotreaters also stabilize refined
products to prevent gum formation. We judge that
Chinese hopes for meeting foreign product specifica-
tions will lead them to purchase more of these units
cracker of native design.
The Chinese claim to have developed hydrocracking
and hydrotreating catalysts, but we judge that they
have had little experience in this area and will
probably be dependent on the West for replenishment.
Before their purchase of the US-designed hydro-
crackers, only one Chinese refinery had a hydro-
from buying more hydrocracker units.
A major obstacle to the Chinese purchase of more
hydrocrackers is that hydrocrackers consume large
amounts of hydrogen. China's refineries do not have a
large catalytic reforming capacity (discussed in the
section entitled Catalytic Reforming), which yields
hydrogen as a byproduct. Therefore, dedicated hydro-
gen production plants must accompany each Chinese
hydrocracker purchased. We believe that the associat-
ed large capital expense has discouraged the Chinese
Delayed Cokers and Other Thermal Processes. De-
layed cokers process heavy oil streams into solid coke,
lighter liquids, and gaseous products. The feedstocks
to the coker are too heavy to be processed by an FCC
unit or hydrocracker. The alternate uses for these
feedstocks are direct burning as a heavy fuel oil or
conversion to asphalt. The virtue of delayed coking is
that about 45 percent of the feedstock becomes
valuable lighter products or feed streams suitable for
the FCC unit or hydrocracker. Because of China's
abundance of heavy crude oil, delayed coking plays a
larger role in Chinese refineries than in US refineries.
ogy, although antiquated by US standards.
The Chinese have their own delayed coking technol-
the Chinese have begun to seek
US coker technology, negotiating in November 1985
for a new plant having a capacity of 90 million metric
tons per year at the Shanghai Gaoqiao petrochemical
complex. The program for Gaoqiao calls for spending
$75 million and includes ancillary plants for process-
ing byproducts of the coker operation.
The Chinese also process their heavy oil streams in
other ways. Thermal cracking and visbreaking are
two other processes that crack heavy feedstocks in
high-temperature furnaces. These thermal processes 25X1
are inferior to catalytic cracking because the quality
of products from thermal processes is poorer. These
processes have become obsolete in the United States,
but we believe that they still play important roles in
China because of the surplus of heavy fuel oil com-
pared with the catalytic cracking capacity.
Catalytic Reforming. Catalytic reformers are second-
ary processing units that restructure hydrocarbons in
some streams from the crude distillation unit to
produce motor gasoline and aromatic hydrocarbons
(for example, benzene, toluene, and xylene). The
aromatics can be important as high-octane compo-
nents in the motor gasoline, but in China they are
removed and serve as feedstocks to petrochemical
plants.
China's first two catalytic reforming units-a 3,000-
b/d Soviet-type unit and a 6,000-b/d unit imported 25X1
from Western Europe-were built in the 1960s. The
Chinese have modified these designs to produce stan-
dard-sized 3,000-b/d reformers and have developed
their own reforming catalysts. The Chinese may be
departing from this pattern of self-reliance, however,
in favor of better performance from newer Western
equipment. In 1985, China completed construction of
an 8,000-b/d continuous catalytic reformer of US
design at a Shanghai petrochemical plant. This re-
former is the largest in China and may indicate a
Chinese decision to install large units of US design.
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All of China's catalytic reformers are accompanied by
aromatic separation equipment that provides feed-
stocks to petrochemical plants. The Chinese plan to 25X1
double their polyester fiber production by the end of 25X1
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alkylation and other processes
the 1980s, which will require expanded production of
aromatics as feedstock. Any increase in Chinese
reformer capacity, therefore, will probably be directed
toward satisfying petrochemical feedstock require-
ments rather than producing gasoline additives. China
will try to meet gasoline octane requirements by using
Alkylation and Other Octane Enhancement
Processes. Alkylation units are designed to recombine
light molecules created in the cracking process to
produce larger molecules that fall within the gasoline
boiling range. The resulting alkylation products are
added to gasoline to raise the octane.0
gasoline.
The Chinese produce leaded gasoline with octane
ratings of 70 and 85. The latter is required for the
automobiles China has imported from the West and is
only available in large urban areas. We believe that
the Chinese also seek to produce an 87 octane, lead-
free gasoline for export to the United States. Increas-
ing the number of alkylation plants will allow China
to increase gasoline exports and keep pace with
increasing domestic requirements for high-octane
Before 1980, the alkylation units in China were small
and few in number, replicas of Soviet-designed units
that used sulfuric acid as the catalyst. The Chinese
have since purchased 10 large alkylation units of US
design that use hydrofluoric acid. The table lists the
locations, capacities, and construction status or com-
pletion date of the alkylation units ordered. The
hydrofluoric acid used as a catalyst in the US process
is highly toxic, but the process design includes mea-
sures for self-contained acid regeneration.
higher octane gasoline.
In 1983,1 Ithe Chinese
planned to have six or seven new alkylation units
operating by 1985 and were interested in eventually
equipping all 30 of their major refineries with alkyl-
ation units. The Chinese have fallen behind their
original plans but remain committed to the expansion
of their alkylation capacity because of the need for
Capacity
(thousand
metric
tons/year)
Status a
Beijing
50
C81
Tianjin
60
U?
Taiyuan b
60
U86
Shanghai (Gaoqiao)
60
U87
Anqing
60
E88
Dalian
100
E88
Fushun 2
60
E86
Liaoyang
100
E89
Nanjing
60
E88
Zhenhai
60
E87
a Status: C-completed, U-under construction, E-in engineer-
ing. Dates are estimated times of completion.
b Refinery unlocated.
The Chinese are also looking at other ways to meet
their octane goals. As environmental concerns force
US refiners to lower the lead levels in leaded gasoline,
US industry is switching to oxygenated additives with
good octane-enhancing properties. The Chinese would
like to produce these same additives and have recently
purchased a 40,000-metric-tons-per-year plant to pro-
duce methyl tertiary butyl ether (MTBE) as a gasoline
additive. The facility uses French technology and is
slated for completion in August 1987. The Chinese
have also contracted for two 20,000-metric-tons-per-
year MTBE plants to be completed in 1988 and 1989. 25X1
They have also expressed interest in purchasing isom-
erization units. These units slightly raise the octane
rating of hydrocarbon streams from the crude oil
distillation unit before the streams are blended into
gasoline. We believe that the Chinese are depending 25X1
on the West for the technology to meet their octane
requirements for indigenous and exported gasoline.
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Lubricant Production. Lubricating oils will play an
important role in the expansion and modernization of
Chinese industry, defense, and transportation. These
oils are produced by processing material from a
vacuum distillation column, usually in three or four
processing units. Chinese lu-
bricating oil technology is based largely on Soviet
units built in the mid-to-late 1950s.
China has major lubrication problems in motor vehi-
cle engines. Their lubricating oils were developed for
low compression, Soviet-designed truck engines of the
1950s. In about 1975, the Chinese began producing
higher compression engines but have not adjusted
their motor oils for this harsher service. Their lubri-
cants are prone to break down at high temperatures,
which means faster wear and shorter engine life for
all Chinese motor vehicles. The Chinese are aware of
this problem; they seek to develop their own lubrica-
tion industry and stop importing the additives needed
to improve the performance of their lubricants. The
Research Institute of Petroleum Processing in Beijing
has a large group active in additive research, theoreti-
cally competent but without production experience. In
late 1984, Qinghua University received $16 million
from the central government to develop lubrication
research capabilities.
The highly paraffinic quality of Chinese crude oils is
the major cause of their lubricant problems. The
conventional methods of lubricating oil processing
involve crystallization of the waxes by adding a
chilled solvent, followed by filtration.
the Chinese seek to improve their
lubricating oils by following this process with hydro-
treaters modified to do mild hydrocracking of any
residual paraffin waxes.
The Chinese have also been seeking Western lubrica-
tion plants. According to open-source publications, in
August 1984, a US oil firm formed a joint venture
with the Chinese Petrochemical Corporation (Sinopec)
to build a 50,000-metric-tons-per-year blending and
packaging plant in Shenzhen. At the same time, an
80,000-metric-tons-per-year lubricating oil plant was
being considered for the same location.
Chinese Design and Construction Capabilities
To modernize their refining industry, the Chinese will
need more than straightforward purchases of Western
equipment. The Chinese have teamed up with US
firms to improve the design and construction of their
refineries, and they are improving the efficiency of
their refining operations. Further help is needed in
process control and operations.
The Chinese already have some established capabili-
ties for refinery design and construction and have
demonstrated an ability to modify foreign process
designs for their own purposes. Nevertheless, the
Chinese have sought Western help in this area. Open-
source reports state that in November 1984 and May
1985, the Chinese formed two joint ventures with US
design and construction firms.
the Chinese hope to learn construction meth-
ods from the US firms as they work together on
Chinese construction projects. Other joint ventures
have been formed between US and Chinese firms to
coproduce process instruments and equipment.
We do not believe that the financial posture of the
Chinese will permit them to continually buy foreign
plants and equipment to expand their refining indus-
try. They are entering joint ventures to acquire tech-
nical expertise from the West. While their near-term
goal in joint ventures is to modernize their own
refineries inexpensively, they ultimately seek to earn
foreign currency by constructing refineries and
chemical plants worldwide.
When licensing Western technology, the Chinese seek
to conserve their hard currency by providing much of
the equipment, engineering, and construction them-
selves. Whereas the cost of a turnkey facility installed
by a foreign firm might be $200 million, the process
license agreement costs only $5 million. The Chinese
are eager to save this foreign currency and occasional-
ly overchallenge their abilities. One Sinopec official
privately admitted that the PRC Government was
going too fast in its do-it-yourself campaign. His
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Refined
Petroleum Products
(/0,000 metric tons per)ear)
Produced
Consumed
Economic region boundary
Province-level boundary
Now China exports nearly 24 percent
of its petroleum products.
because of a shortage of product pipelines.
500 Miles
Compounding the problem of insufficient secondary
processing units for China's heavy crude oils is the
mislocation of Chinese refineries. They were con-
structed near the oilfields and along coastal regions,
and their products were shipped by rail and barge to
the populated centers. The Daqing oilfield, in north-
east China, was the first major discovery, and its
legacy is a disproportionately large refining capacity
nearby. The movement of refined products conse-
quently requires a great deal of rail-shipping capacity
The map includes a comparison based on 1982 data
of the relative levels of production and consumption
of refined products in the six regions of China. Note
the insert labeled ':first-level stations. " Having no
refining capacity, this consumption figure probably
represents the products consumed by priority users,
perhaps the military or high-level party cadres. Be-
cause these figures have been based on Chinese open
literature, they should be considered approximate.
First-level
stations
The disparity between refining and consumption is
most apparent in northeast and southwest China. In
the northeast, over four times as much was refined
as was consumed. A particular example of this
disparity is China's Dong Fang Hong (East is Red)
Refinery in Beijing. This refinery, China's largest,
produces more petroleum products than the Beijing
region requires. Not only is crude oil shipped into
Beijing to feed this refinery, but most of the refined
products are shipped out of Beijing--a double burden
on the rail system. Yunnan, Guizhou, and Sichuan, in
southwest China, have a dearth of refining capacity
and are candidate locations for new refineries.
The refining industry has called for locational re-
adjustment of China's crude oil processing capacities.
Areas of deficiency are to receive new refineries, and
areas of surplus are to have their refineries modern-
ized, permitting the export of quality petroleum
products. In both cases, Western refining technology
will be needed.
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comments were prompted by a recently licensed pro-
cess that called for vessels of special alloys beyond
current Chinese metallurgical and manufacturing ca-
pabilities. By insisting on self-reliance and continually
challenging their capabilities, the Chinese will eventu-
ally acquire the ability to do most of the expansion of
their petroleum refineries and be able to offer con-
struction and engineering services for refineries
abroad.
Improving Refinery Efficiency
In addition to modernizing their refining process and
lightening their product mix, the Chinese will need to
continue to improve the efficiency of their refineries.
Efficient refining involves directing appropriate feed
streams to the proper process units and selecting the
best operational parameters to maximize the value of
products from the refineries. In mid-1985, the
Chinese used their own linear programing models on
personal computers to guide their refinery operations.
The guidance obtained may be incorrect because
operation of the model requires the calculated prices
for products and intermediate streams. These prices,
in China's planned economy, tend to be unrealistic.
The Chinese are replacing their linear programing
models with better models from the West. We believe
that these new Western techniques will improve the
understanding of the value of intermediate streams
and lead to better refinery operations.
The Chinese have also been gradually improving the
energy efficiency of their refineries. They have had an
aggressive program of energy conservation in their
plants since 1979. In 1983, the Chinese claimed in an
open-source publication to have reduced energy con-
sumption by nearly one quarter to a level where 80
kilograms of fuel oil were required to refine each
metric ton of crude. This level is comparable to the
energy consumption levels of US refineries in 1981.
Their claims for reduced oil leakage and flaring have
Although putting the formerly flared
material into the refinery's fuel system may save the
energy content, there are more economical uses for
these light hydrocarbons in the alkylation process.
The Chinese know this and plan to expand their
alkylation capacity, as discussed above, to recombine
light hydrocarbons from their catalytic crackers.
A more dramatic example of energy savings in
Chinese refineries is the widespread construction of
boilers connected to their catalytic cracking units
In this new configuration common
in Chinese refineries, the effluent from the regenera-
tor is piped to the adjacent boiler, where the combus-
tion is completed and the heat content of the regener-
ator effluent generates useful steam.
Other techniques now being explored by the Chinese
to save additional energy were implemented in the US
petroleum industry nearly a decade ago. Conversa-
tions with Chinese refinery personnel indicated their
awareness of these techniques, but actual implemen-
tation has never been tried.
Improving Refinery Reliability
Crude oil contains many inorganic substances that
become corrosive at various points in the refining
process. Chinese personnel from
one refinery revealed a lack of understanding of the
corrosion problems in critical areas such as the crude
tower overhead system. Corrosion control in Chinese
refineries lags developments in the West and is anoth-
er area where the Chinese might come to the West for
expertise.
The Chinese can improve operations by making selec-
tive purchases of refinery components that are critical
to process reliability. In June 1986, for example, a
Chinese delegation came to the United States seeking
slide valves for fluidized-bed catalytic cracking units
of US design. The five valves, costing approximately
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$5 million, are critical for the control of the continu-
ous circulation of catalyst. This is harsh service
because the fluidized catalyst is abrasive. The short
life of FCC slide valves often dictates when a refinery
must be shut down for repairs. Shutdowns occur every
two and a half years in US refineries, but Chinese
refineries are shut down yearly. This frequency of
scheduled shutdowns may be driven by other factors,
in addition to FCC valve wear. The yearly shutdowns
underscore China's need for critical equipment and
the poor state of process reliability in their refineries.
Process Control Technology
The process control instrumentation used in Chinese
refineries is obsolete but satisfactory for meeting most
needs. Tougher product specifications will have to be
met, however, if the Chinese wish to sell more refined
products abroad.
most Chinese
refineries have separate, independently operated con-
trol houses for each process unit in the plant instead
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of centralized control centers that are common in have therefore decided to equip all new facilities with
Western refinerie Western state-of-the-art computerized process control
The dispersal of processing units along systems. As the Chinese modernize older refineries,
mountain valleys for security purposes introduces therefore, large sums will be spent for Western con-
numerous control problems. This practice puts greater trol equipment.
reliance on people than on process control technology
and results in suboptimal control of plant operations.
We believe that the process control equipment in Implications
China's refineries will have to be modernized if export
products are to meet foreign specifications. Process The trends in Chinese petroleum refining suggest that
control instrumentation accounts for 10 percent of the China is diverting scarce resources from other pro-
cost of a new facility. The Chinese know the economic jects in the near term to expand refining capabilities
benefits from installing advanced process control
systems. the Chinese
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Organization of China's Petroleum Industry
The Chinese eliminated the confused fragmentation
of their petroleum industry by centralizing it in 1983.
The Chinese Petrochemical Corporation (Sinopec), a
ministry-level organization, was established to plan
and control petroleum refining, new design and con-
struction, research and development, and all internal
trade in petroleum products. Sinopec s purpose was
to eliminate the inefficiencies of having several minis-
tries active in the two areas of petrochemicals and
refining. Sinopec now controls nearly 95 percent of
China's refining capacity.
quickly. Beijing knows that purchases of more sophis-
ticated refining processes from the West are necessary
to promote their industrial modernization. China may
not be able to satisfy internal demands for fuel in the
future or expand petroleum exports without this infu-
sion of Western equipment and know-how. Even if
hard currency constraints persist, China will probably
continue its investment in refinery technology because
of the potential to export products not consumed
internally.
Economic Relations and Trade (MOFERT).
Sinopec has the authority to buy foreign products, to
license foreign technology, and to engage in joint
production ventures. In export matters, the lines of
responsibility are unclear. Export sales of refined
products and crude oil are conducted by the Chinese
Chemicals Import-Export Corporation (Sinochem), a
trading corporation under the Ministry of Foreign
capacity of Sinopec s existing refineries.
The consolidation of China's refining industry could
revert to the pre-1983 fragmented condition. The
creation of Sinopec in 1983 was not without friction:
the Ministry of Chemical Industry lost control of
China's petrochemical plants and the Ministry of
Petroleum (MoP) lost control of most of China's
refineries. That the MoP s authority may be on the
rise is reflected in the Seventh Five-Year Plan, which
designates that all new refineries be under MoP
control. Sinopec will only be expanding its existing
refineries. It is likely that China will increase its
refining capacity by about 30 million metric tons per
year by 1990. About 15 million metric tons per year
will result from new refinery construction under
direct control by the MoP, and about 15 million
metric tons per year will result from the expanded
Until China can copy the newly acquired processes or
develop its own, the dependence on foreign technology
may be an incentive for maintaining good commercial 25X1
ties to the West. The duration of this dependence is
uncertain, but at least 10 years seems likely. In that
time, China will be completing several refinery im-
provements and major equipment replacements.
Through several joint ventures with Western firms,
the Chinese will learn construction management tech-
niques and coproduce process valves, pumps, and
other equipment. Although the purchase agreements
for Western processes call for importing of fresh 25X1
catalysts, the Chinese continue to develop their own.
Chinese researchers are also very active in obtaining
synthetic fuels from coal and shale oil. While we do
not expect the Chinese to immediately reverse-
engineer Western processes, the accumulated effect of
their indigenous research and commercial interactions
will make process copying and independence from the
West possible in the future.
For the United States, the most direct impact of
China's effort to upgrade its refineries will probably
be commercial, with both positive and negative re-
sults. In the near term, China's need for Western
technology represents potential sales of equipment
and services worth several hundred million dollars. In
the longer term, China's ability to build modern
process equipment will probably lead to competition
with Western firms for sales to Third World coun- 25X1
tries. We believe China intends to export both facili-
ties and services. Competition with Western refineries
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Figure 7
Increased Output of Light
Petroleum Products
104 Mmt/y
1985
88 Mmt/y
1978
China is making two efforts to expand the production of
petroleum products. The Chinese are increasing their refinery
capacity to process more barrels of crude oil per year. They
are also acquiring more advanced technology from the West
to process each barrel of crude more completely into light
products such as gasoline and diesel fuel. Shown here is the
130 Mmt/y
1990
increase in refining capacity achieved in recent years and
China's projection for refining capacity in 1990, which will
probably be achievable. Chinese progress in refining their oil
more completely points to a 60-percent conversion to light
products by 1990-approaching today's European refining
operations. The United States converts more than 70 percent.
ing a major supplier of refined products.
may also increase as China begins to export more of
its petroleum as refined products rather than as crude.
In the past, however, Chinese sales of gasoline to the
United States-its major customer-represented, at
most, only 5 percent of US gasoline imports. We
believe internal demand may keep China from becom-
China's refinery expansion will promote basic eco-
nomic growth and industrialization. Its general strate-
gic and political implications for the United States go
beyond the scope of this assessment. The payoff for
China is considerable. With continued access to West-
ern technology, we believe that by 1990 China will be
able to extract 30 percent more of the valuable, light
products from each barrel of crude oil than was
possible in 1978. And as China's refineries are ex-
panded to process more barrels of crude per day, the
multiplicative effect will be a doubling of the output
of light products (see figure 7). Regardless of changes
in leadership, China may see the current progress of
its petroleum refining industry as a benefit from
maintaining close commercial ties to the West.
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