Crude Throughput at Shandong Independents to Drop Nearly 15% in 2025
In recent years, as the management of crude oil import quotas has become increasingly regulated and stringent, China’s independent refineries have supplemented feedstock with offshore crude from CNOOC and imported fuel oil, though they have relied mainly on imported crude oil.
Accordingly, independent refiners have stratified into the following tiers based on feedstock structure: refiners with ample crude oil import quotas; refiners whose quotas are sufficient and supplemented with domestic offshore crude; refiners whose quotas are insufficient and supplemented with both domestic offshore crude and imported fuel oil; and refiners that have no quota available and have to rely on imported fuel oil.
In 2025, the crude throughput at Shandong independents is likely to drop by 14.5% YoY to 89.93 million mt/a (1,806kbd), registering decreases for two consecutive years.
Shandong independent refiners’ profitability was hit by the irreversible shift to new energy.
China’s gasoline and diesel demand have peaked in 2023, with ongoing substitution by NEVs and LNG. As traditional fuel-oriented producers, Shandong independent refineries have borne the brunt of this structural shift, forcing them to dig profits on the feedstock side instead.
According to SCI profit model, Shandong independents would face marginal losses when processing ESPO crude, while Oman crude would lead to even deeper deficits. However, profitability will largely improve with Malaysia Blend, which explains why these refineries continue to rely on such sensitive crude grades despite sanction risks.
By contrast, slacking enthusiasm for production has been observed among independent refiners with lower risk tolerance or insufficient crude import quotas.
Reduced imported fuel oil consumption tax rebate triggered refinery production slowdown.
In January, 2025, the consumption tax rebate ratio on imported fuel oil was cut, sharply increasing costs for refineries that use fuel oil as a major or supplementary feedstock. As a result, demand for imported straight-run fuel oil plunged, triggering widespread shutdowns or operation cuts, particularly painful for bitumen producers.
By June, the rebate ratio was raised again, and refinery utilization began to recover gradually. The adjustment first stimulated demand for imported LSFO, though HSFO imports remained limited due to higher prices.
Nevertheless, China’s overall demand for straight-run fuel oil continued to be affected, with independents’ consumption likely falling by 15.3% YoY to 17.08 million mt.
Some crude quotas have not been fully utilized due to long-term shutdowns.
For 2025, a total of 181.57 million mt of crude import quotas were allocated to independent refiners. Among them, ChemChina received 17.12 million mt for its three Shandong-based subsidiaries, Zhenghe, Huaxing, and Changyi.
However, Zhenghe and Changyi were shut down in May and June, 2024, respectively, before resuming operations under new ownership in October and June, 2025. Huaxing has been offline since October, 2024, with restarts scheduled for the end of October. As a result, the combined 17.12 million mt quotas for these three refineries have yet to be fully utilized this year.
Alternative feedstocks are supported by inelastic demand from refiners.
Offshore crude continues to play a pivotal role in Shandong independents’ feedstock slates, valued for its stable quality. Even under financial pressure to cut costs, their demand for offshore crude remains resilient, as it serves as a reliable and flexible backup for those with insufficient crude import quotas.
Overall, Shandong independents are operating in a tough environment, squeezed by rising compliance costs, faded fuel demand, and quota constraints. These have led to the sharp decline in their crude runs.
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