China's Petrochemical Pivot: The 'Oil-to-Chemicals' Shift Reshaping an Industry

As the global energy landscape undergoes profound adjustments and China's 'dual carbon' goals accelerate, the nation's vast petrochemical industry is navigating a critical transition from 'scale expansion' to 'quality enhancement'. While a pillar of the economy and a global leader in core sectors, the industry faces intensifying structural contradictions, making the 'oil conversion' strategy a central pathway to resolving these challenges.

1. Background: Scale and Structural Pressures Force an Inevitable Shift

China's petrochemical sector has achieved 'global scale leadership'. Its refining, ethylene, and paraxylene (PX) production capacities are the world's largest. By 2025, China's primary refining capacity is projected to reach 970 million tons/year, accounting for 19% of the global total. Its ethylene and PX capacities will remain dominant at 60.5 million tons/year and 44.01 million tons/year, respectively, a leadership position set to continue through the 15th Five-Year Plan period.

However, this scale masks deepening issues. The traditional refining model, focused on producing refined oil, faces a disconnect from market realities as new energy adoption accelerates and oil demand peaks. Concurrently, demand for chemical products grows rapidly, yet key raw materials like ethylene and PX still rely heavily on imports. This structural imbalance-'simultaneous imbalances in refined oil supply and demand alongside shortages of chemical feedstocks'-has become a core bottleneck. The 'oil conversion' strategy, centred on 'reducing oil and increasing chemicals', has thus emerged as an inevitable choice for the industry's future.

2. Core Significance: Rebalancing Supply and Reconstructing Value

The transformation's value lies in reshaping product portfolios to resolve the traditional refining model's crises.

· Resolving Structural Imbalances

The refining industry, long 'big but not strong', is heavily reliant on refined oil. With China's refined oil demand having peaked in 2024, operating profits have significantly declined. In contrast, integrated refining and petrochemical operations fundamentally restructure the product chain. Data indicates traditional refining yields only about 15% chemical feedstock from one ton of crude oil, whereas integrated facilities can boost this to over 40%.

Corporate data exemplifies this shift: after Guangxi Petrochemical's integrated project launched, annual refined oil production decreased by 3.49 million tons while chemical output increased by 3.06 million tons. Similarly, Jilin Petrochemical's transformation reduced refined oil output by 2.63 million tons and increased chemical production by 2.77 million tons annually.

· Enhancing Value-Added and Profit Resilience

The economic benefits are clear. From January to September 2025, the comprehensive profit under the traditional refining model was approximately 34.84 yuan per ton, turning negative in May. In contrast, the integrated model, which extends production to downstream products like polyethylene and polypropylene, can increase comprehensive profits by 200-400 yuan per ton. Integrated projects also offer flexibility to adjust product slates based on market prices for oil and chemicals.

3. Enterprise Practices: Dual Breakthroughs in Projects and Technology

As main players, Sinopec and PetroChina are driving the transition through large-scale projects and proprietary technology.

· Large-Scale Refining-Chemicals Integration

This mainstream approach involves constructing or retrofitting facilities to deeply integrate processes and maximise chemical output. Among China's 119 refining enterprises, 51 have completed integrated upgrades, over 20 are advancing or planning projects, and 68 have yet to initiate modifications. A key example is Sinopec Zhenhai Refining & Chemical's 1.5 million-ton-per-year ethylene and downstream project, scheduled for 2028 completion. Upon commissioning, its chemical product yield will exceed 60%.

· Expanding Chemical Feedstock Supply

To address ethylene feedstock shortages, refineries are adding hydrocracking units. China's total hydrocracking capacity is 228 million tons/year, with a further 37.1 million tons/year planned. Daqing Petrochemical, while expanding ethylene capacity to 1.38 million tons/year, installed a 1.2 million tons/year hydrocracking unit, achieving a naphtha yield of 45% and resolving its feedstock shortage.

4. Primary Pathways: Proprietary Technologies for Efficient Conversion

Sinopec's proprietary Heavy Oil Catalytic RTC Cracking Technology directly converts heavy feedstocks into low-carbon olefins. The technology has been licensed for eight units with a combined capacity of 20.9 million tons per year; three are operational and five are under construction. At Sinopec Anqing Petrochemical's 3-million-ton-per-year catalytic cracking complex, RTC technology enables annual production of 130,000 tons of ethylene and 550,000 tons of propylene.

CNPC has developed a diesel-aromatic adsorption separation unit. Guangxi Petrochemical's project includes the world's largest 2-million-ton-per-year diesel adsorption unit, which will boost its ethylene plant's feedstock self-sufficiency rate from 70% to 95%.

Independent refiners are pursuing differentiated strategies. Dongming Petrochemical collaborated to develop 'Uniflow Process Catalytic Cracking (UPC) Technology', which reduces energy consumption by 20%. Others, like Jingbo and Hengli, adopt international technologies like KBR's K-COT™ to achieve high propylene yields.

5. The Future: Seeking New Balance Through Regulation and Innovation

The industry's future lies on a 'path to green, low-carbon, and high-end' operations, entering a period of comprehensive reform focused on 'capacity reduction, quality improvement, and emission reduction'.

· Capacity Regulation Enters 'Reduction and Replacement' Phase

Policy during the 15th Five-Year Plan is expected to shift to 'net elimination' of capacity. The refining sector must rebalance through net reduction, while the ethylene industry must strictly control new projects and phase out inefficient capacity.

· Industry Chain Shifts to High-End Tracks

Enterprises are compelled to break into high-end segments. CNPC will prioritise high-end daily chemical products and TPV rubber, while Sinopec will focus on medical and electronic protective film materials. Future projects will be 'high-end, specialized projects' deeply integrated with downstream advanced manufacturing, such as bases for new energy vehicles or semiconductor industry parks, avoiding homogeneous competition.