South China Post has an article about capital spending cutbacks by China's two largest oil majors - PetroChina and Sinopec. Cutbacks are attributed to apparent overcapacity in the refining and midstream sectors. From the SCMP:
PetroChina, which leads the world's companies in capital expenditure, and fellow oil and gas producer China Petroleum & Chemical (Sinopec) are expected to trim spending in the next few years.
Contributing factors are flat oil prices, rising debt, slowing growth in demand and excess capacity in oil refining and chemicals.
According to this Reuters article, 2013 was China's lowest oil demand growth in 22 years - according IEA data. I found references (from an unnamed source) about three delayed refinery projects in this Reuters article.
"China's oil consumption growth is slowing down and overcapacity in the oil industry is looming. Rapid expansion in refining capacity will result in a glut and increasing net fuel exports," said the PetroChina official who declined to be identified because he is not authorized to talk to media.
PetroChina will now start up its 200,000-bpd Kunming refinery in the Yunnan province in 2016, two years behind the original schedule, the official said.
Operation of a 400,000-bpd joint venture refinery in Jieyang of Guangdong province will be delayed to 2017, versus the original plan of 2013, he said.
Shifting to parallels in the other hemisphere, oil majors saw impacts from their own refining overcapacity. Some majors and independents have begun spinning-off their upstream and downstream units from one another. Some majors even saw their revenues impacted, from FT:
Squeezed margins in the global refining industry are hurting the world’s largest oil companies, as Royal Dutch Shell, Total and ExxonMobil all blamed poor quarterly earnings on a decline in their downstream businesses.
Results from Shell were the most disappointing Thursday, as its profit dropped almost a third to $4.5bn. ExxonMobil’s profit fell 18 per cent to $7.87bn, while Total’s declined almost a fifth to €2.72bn.
All the majors have been hit by refinery overcapacity and weak demand for petrol and diesel in slowing western economies, which has hit earnings in their downstream – refining and marketing – divisions.
The problem is most striking in Europe, despite refinery closures that have taken some 1.7m barrels a day of capacity out of the system since 2008. Figures from the International Energy Agency show European demand for refined products will average 13.5m b/d, almost 2m b/d less than in 2008.
If China is in a period of oil refining overcapacity, what does that mean for future oil prices?