Sinopec aims to process 5.1 mil b/d crude in H2 2023 as domestic demand recovers

China's state-owned Sinopec targets to refine 5.07 million b/d (127 million mt) of crude oil in the second half of 2023, almost steady compared with volumes in January-June, and despite the oil giant expecting a further recovery in domestic demand amid uncertainties over oil product exports for the remainder of the year, company executives said during its interim report briefing on Aug. 28.

Sinopec, the world's top refiner by comprehensive processing capacity of 5.78 million b/d, targeted throughput for the second half of this year to be equivalent to 87.7% of utilization.

In comparison, it lifted throughput by 4.8% year on year to 5.14 million b/d (126.54 million mt) of crude in H1 despite having shut a combined 800,000 b/d of primary capacity for 35-50 days during maintenance season in March-July, according to the company's interim results statement and S&P Global data.

"We expect to see a 12.7% year-on-year increase in China's oil product consumption in H2, the volume would be higher than that in H1," Sinopec's President Yu Baocai said during the briefing, adding that product consumption gained 12% on the year over January-June.

Yu also said that China's crude imports are usually closely in line with domestic demand, Yu said.

The country's crude imports jumped 11.7% year on year to 11.42 million mt in H1 2023, General Administration of Customs data showed. S&P Global estimated the country's total oil demand to rise about 6% on the year to 16.4 million b/d in 2023.

Sinopec's CEO Shou Donghua expected the company's gross refining profit to rise in Q3 as oil products will be refined from lower-priced crude barrels. These refined products can then be sold at higher prices when global crude benchmarks are on an uptrend.

Moreover, stronger oil product crack spreads would generate good margins from exports, while an increase in the number of international flights will further boost jet fuel sales, Shou said. In addition, LPG prices have been recovering.

Sinopec's gross profit from the refining sector stood at Yuan 354/mt ($6.62/b) in the first six months of 2023, down 33.6% year on year, according to the company's interim report.

Shou attributed the reduction in gross refining profit partly to the slump of up to Yuan 963($132.13)/mt in domestic LPG prices. She said the new consumption tax on alkylate led to the shutdown of alkylation units, resulting in its upstream feedstock LPG flooding the market.

Expand sale market share

In comparison, Sinopec's marketing and distribution segment lifted operating profits by 0.7% year on year to Yuan 17 billion amid an 18.5% increase in its total oil product sales to 116.6 million mt in H1, according to the report.

Its domestic oil product sales volume marched 17.9% higher year on year to 92.47 million mt, exceeding the 10% increase in the company's oil product output which stood at 76.07 million mt as Sinopec takes both internal and external productions to supply to retail and wholesale markets.

"Sinopec's higher sales volume growth than domestic demand improvement suggested the company expanded its market share, as the independent outlets are losing their price competitiveness when the government is plugging the loophole of tax evasion," a Hong Kong-based analyst said.

She added that the company was able to cut transaction costs as it sold several memorandum of understandings with independent refineries.

As for oil product exports, Sinopec's President Yu Baocai said there was some uncertainty for the remainder of the year.

"China's oil product output capacity is obviously higher than its domestic consumption. From a refinery's perspective, export volumes depend on the cracks between product and crude prices in the international market, while the government controls exports based on supply and demand balance in the domestic market," Yu said.

Sinopec exported 8.08 million mt of clean oil products in January-June, surging 74% year on year, while gasoline exports slipped 3.2% to 700,000 mt. Gasoil and jet fuel outflows stood at 3.04 million mt and 4.34 million mt, jumping 229% and 60%, respectively, according to Yu.

Lift investment in chemicals

Yu said Sinopec will continue with its heavy investment in the chemicals segment despite losses incurred due to weak demand coupled with repaid capacity expansion in China.

The company's gross profit for chemical products dropped 57% year on year in the first half of 2023, with an operating loss of Yuan 3.4 billion compared with a profit of Yuan 800 million a year ago.

It targeted to spend Yuan 29.4 billion in the chemical sector in H2 on top of a capital expenditure of Yuan 30.04 billion in January-June. This will bring the segment's total budget to Yuan 59.44 billion, exceeding its annual target of Yuan 46.6 billion set in March, the report showed.

"We will further transform and upgrade our existing production facilities, while developing emerging business to bring up our profile, to maintain our influence and strong competitive edge in the chemical market," Yu said. He added that China's demand for chemical products, especially for high-end and special products, will rise in line with Asia's top consumer's economic growth in the long run.

Sinopec's upstream exploration and production business segment continued to take the biggest proportion of the company's budget at Yuan 41 billion for H2 2023 and Yuan 33.42 billion over January-June, the report showed.

Chairman Ma Yongsheng said conventional oil and gas play an irreplaceable role in the country's energy security, while the business also provides strong financial support to develop low carbon initiatives, creating great synergy.

Sinopec lifted its oil and gas production by 3.3% year on year to 249.88 million barrels of oil equivalent, on track to meet its annual target of 495.43 million boe for 2023, the report showed.

Sinopec's operation results

*Oil, gas outputs from both domestic and overseas

Source: Company report

Sinopec's domestic production (million mt)

^ Divide Sinopec's output by China's total production

Source: Company report, the National Bureau of Statistics