A recent blockade of the Strait of Hormuz by Iran has led to a crude oil shortage from the Middle East, causing Chinese firms to delay two significant refinery projects that could produce a total of 500,000 barrels per day (bpd).
According to Reuters on Monday, sources indicate that these projects include a 300,000 bpd refinery in Panjin, located in northeastern China, and a 200,000 bpd refinery in Dalian, situated in the south. Both were expected to rely heavily on Middle Eastern crude oil.
The refinery in Panjin is a collaboration among China’s state-owned Panjin New City Industrial Group, defense firm Norinco Group, and Saudi Arabia’s state oil company, Aramco. They formed a new entity called Huajin Aramco Petrochemical Company (HAPCO) to oversee this project.
Initially, the Panjin refinery was due to start operations by the end of June, but now it’s set to be delayed until at least September, depending on how quickly oil flows from the Middle East stabilize.
The Dalian refinery, managed by China’s state-owned PetroChina, was intended to take advantage of low-priced crude oil from Russia.
While the crisis in the Hormuz region hasn’t directly halted oil deliveries for the Dalian project, the heightened demand for Russian oil, alongside rising prices, has shifted the necessity for new refineries. Reports indicate that China’s refineries are currently operating at about 69% capacity, which diminishes the urgency for additional projects. Consequently, construction of the Dalian refinery has been postponed indefinitely.
CNBC reported that since the onset of the Hormuz crisis in early March, China has served as a “key pressure valve in the energy market,” decreasing its oil imports from 11.7 million barrels per day to 9 million, thereby easing the resulting “supply shock” on the global market.
Industry experts estimate that China accounts for 74% of the global decline in oil imports since March.
Interestingly, despite the drop in imports, crude oil prices haven’t risen as steeply as some projected. While global oil supplies have decreased by 14% during this crisis, prices have only gone up by 30%. For context, during the 1973 OPEC oil embargo, a mere 7% reduction in supplies led to a staggering 134% price increase.
