Zhejiang is still dependent on imports to meet its massive energy demand. Jiemian News sees how the provincial government, is proactively pushing to build the next commodity trading center with global influence.
A bird's eye view of the petrochemical plant in Zhoushan. Photo from CFP
By HOU Ruining
Over the last three years, Zhejiang has reorganized its oil and gas industry in hope of becoming a major international energy trading center. Less than a two-hour drive from Ningbo Zhoushan Port, the largest oil and gas industry cluster in the country has been taking shape in the Zhejiang FTZ.
More than six thousand energy companies have offices or plants here including ENN, one of the largest private energy groups in China.
Zhejiang Petroleum and Chemical’s refinery and petrochemical complex is the largest in the world.
“Zhejiang is playing catch up,” said economist XU Jianfeng.
Zhejiang imports 95 percent of its energy. In 2019, it consumed 180 million tons of refined oil products and 15 billion meters of natural gas.
By 2025, refining and new materials are expected to bring in another 12,000 oil and gas companies, consuming a further 140 million tons at a cost of 1.8 trillion yuan each year. Zhejiang, China’s Petri dish of entrepreneurial experiments, is now the crucible for energy reform.
The State Council approved the expansion of processing, shipping and storage at the FTZ in March and is making moves toward building a friendly financial infrastructure. Introducing market forces to the state monopoly could make Zhejiang the next global commodity trading hub. Zhejiang Petroleum and Chemical is the first private refiner licensed to export refined oil products and compete directly with state-owned refiners.
Ningbo-Zhoushan has become the eighth largest refueling port in the world, and China remains dependent on imports for its energy. A highly liquid market, efficient pricing, and a vibrant industry cluster are essential to China’s future. Zhejiang FTZ has formed an oil and gas value chain by building storage, transportation and trading base, but is now heavily dependent on the international maritime situation and liberalization of the yuan.
Until recently, most pipelines were controlled by state energy companies that supply gas at tightly regulated prices. The mechanism has hindered gas production by restricting access for small private producers. In 2019, Zhejiang consumed half the natural gas of Jiangsu with its open gas market. Gas there costs only three-quarters of Zhejiang prices. To open up its energy market, Zhejiang set up an oil and gas pipeline entity to separate and marketize transportation, production and sales, open to third-party companies.
“The next step is to figure out the ownership structure of the provincial pipeline company, as well as its relationship with the national one,” said LIU Yijun of China University of Petroleum. “It remains to be seen how the network will coordinate suppliers, especially private ones.”
Zhejiang is the fourth largest oil refiner in China. The rise of the sector is not only attributable to its natural deep-water harbor and location at the center of an economically developed region. Its focus on high-value chemicals rather than traditional fuel has help it swerves many of the pitfalls afflicting older refining regions.
Shandong still has the largest refining sector, with many small refineries grappling with low margins. Jiangsu’s old, polluting refineries are now confronted by environmental regulations that mean upgrades or closure.
Unburdened with these legacies, Zhejiang is centered on large-scale processing. Open business policies and a welcoming investment climate have boosted its thriving entrepreneurial economy, helping the oil and gas sector to extend its reach.
Reservations still loom large over the domestic and global markets. Internal barriers to oil and gas shipping and sales restrict Zhejiang’s ability to reach the vast domestic energy market. The high capital requirement and slow returns on oil and gas further complicate a volatile energy market and global trade tensions. Commodity trading hubs like Singapore or New York were not built in a day.
