As it is known, the reasons and results of China's rise have been one of the most trendy debates in academia and the business world because of the issues like Trade Wars, their great growth rates, and attraction for foreign direct investments. Another subtopic that is also notable is the increasing importance of the country in the refining industry. With the U.S. shutting down of the Convent refinery in Louisiana, China's catching up with the U.S. in terms of the refinery capacity can be discussed over the change in their capacity throughout the years, shifting the core, effects of coronavirus pandemic, etc. In the following paragraphs, information about their position in this field will be provided, and new developments will be reflected.
Figure 1: Shifting Core: China is set to surpass U.S. in refinery capacity having overtaken Europe
Source: Bloomberg&BP Plc
As mentioned before, Royal Dutch Shell terminated the Convent refinery activities in Louisiana because they decided to reduce the capacity, and they could not find a buyer. On the other hand, counterparts in China put a new unit into operation, almost as an indicator of the situation that has been mentioned in the introduction. Figure 1 shows the convergence of China to the EU and the U.S. since the '70s. The dramatic increment of China resulted in surpassing Europe. In addition to this, America has been top of the refining pack since the start of the oil age in the mid-nineteenth century. According to the International Energy Agency, China will dethrone the U.S. as early as next year.[1] According to the news of Hydrocarbon Processing, "China is expected to lead Asia and Oceania's refinery capacity growth, contributing around 71% of the region's total capacity growth by 2024. China is likely to add 2.6 MMbpd of refinery capacity by 2024, says GlobalData, a leading data and analytics company." [2][3] Coronavirus pandemic is also a crucial factor that should be taken into account. Since an economic recovery in China and other Asian countries is experienced, demand for fuels and plastics gathered strength. On the contrary, in Western countries, we still observe a crusade against pandemic's economic impacts. In these countries, the future of the oil demand is not that hopeful.
Besides the particular rise of China, the situation of Asia as a whole is also matters. Comparison between China and the U.S. can be generalized as a comparison between Asia and Western countries, including the EU. Hedi Grati says that "About two-thirds of European refiners aren't making enough money in fuel production to cover their costs." [4] They still should decrease their daily processing capacity in the following five years. In addition to China, another BRICS country, India, is also enhancing its processing capacity to 8 million barrels per day by 2025. When we continue with the Middle Eastern producers, it can be said that they are not out of the game. There are two projects of new units that will contribute to more than a million barrels per day. They will be put into operation next year. It is evident that balances in the refinery industry race are changing in favor of Eastern countries.
In conclusion, some inferences can be deduced from the shut down of the Convent refinery in Louisiana and facts related to this development. Firstly, the global economy and the world's paradigm change, and this transition process cannot be reduced to several dimensions. Still, it should be comprehended with all aspects because of the international political economy's intertwined dynamics. For instance, a profit maximizer oil company's decision in energy markets (i.e., opening or closing a refinery in a country) may affect the host country's position in world politics and global economy and even the negotiation capability in the bargaining table. In this context, all state and non-state actors should analyze the world's current situation and take their actions realistically. The second point is the importance of countries' resilience against the crisis in a holistic way. COVID-19 pandemics has been a period that examined the countries' governance capacity, including the healthcare system, economic capacity, and policy-making processes. As seen in our example, if recovery delays, countries may suffer from it (problems with oil demand).
References
1) China Is Set to Eclipse America as World’s Biggest Oil Refiner. www.bloomberg.com/news/articles/2020-11-21/china-is-set-to-eclipse-america-as-world-s-biggest-oil-refiner?sref=5dj0X2VO.
2) China to Dominate Asia and Oceania's Refinery Capacity Growth by 2024. www.hydrocarbonprocessing.com/news/2020/10/china-to-dominate-asia-and-oceania-s-refinery-capacity-growth-by-2024.
3) “Refining Industry Outlook in Asia and Oceania to 2024 - Capacity and Capital Expenditure Outlook with Details of All Operating and Planned Refineries.” GlobalData Report Store, GlobalData, Oct. 2020, store.globaldata.com/report/gdge1295icr--refining-industry-outlook-in-asia-and-oceania-to-2024-capacity-and-capital-expenditure-outlook-with-details-of-all-operating-and-planned-refineries/.