Die einde van 'n era: Die dreigende krisis en eksistensiële stryd van Shandong se onafhanklike raffinaderye in die lente van 2026
In die lente van 2026, 'n voortslepende rilling het steeds oor die land Qilu gesweef (Shandong Provinsie). Terwyl die stede nog vas aan die slaap was, die termynhandelkamers van verskeie plaaslike onafhanklike olieraffinaderye (known as “tepot” refineries) in Shandong were already brightly lit, having remained active through the entire night.
With bloodshot eyes, traders stared intently at the fluctuating crude oil figures flashing on overseas screens, their fingers tapping relentlessly on keyboards. Every single pip of volatility on the screen directly tied to the life or death of the towering distillation columns (refining towers, the core large-scale vertical pressure vessels in the petrochemical industry) standing behind them.
Once upon a time, by leveraging the dividend of discounted crude oil from special channels, Shandong’s independent refineries joined forces with private gas stations to write the history of the industry’s golden age of growth.
Today, however, international oil prices have breached the $100 per barrel mark, and the once-reliable procurement discounts vanished overnight. Coupled with increasingly stringent tax regulations and the disruptive impact of the new energy vehicle (NEV) boom, a silent battle for survival is unfolding across the refining towers of Shandong.
Root Pressure: Oil Prices Breaching $100 + Sanctions Tightening, Raw Material Supply Alarms Sound First
Drastic changes on the raw material side continue to erode the profit margins of these independent refineries.
Multiple industry sources confirmed that over the past few years, many Shandong independent refineries secured their crude oil procurement through special channels. Transported by a “shadow fleet” not included on public rosters, and at the cost of giving up formal insurance, these refineries traded risks for a major procurement cost advantage. This had been the core mechanism for the industry’s survival for many years.
“In the past, purchasing crude oil from these sources could save up to $20 per barrel. Now, there isn’t a single cent of discount left,” said Xue Yu (a pseudonym), a long-time oil industry insider who frequently deals with Shandong independent refineries. His words pierced straight to the brutal reality of skyrocketing crude oil costs currently facing these businesses.
Xue Yu explained that the current global crude oil supply remains tight. Russian and Iranian crude have transformed from “unpopular discounted items” into highly contested targets in the global market. Furthermore, with the U.S. granting temporary exemptions for certain loaded vessels, global buyers have flooded in. As a result, the once-lucrative procurement discounts have completely vanished, and prices have fully aligned with international benchmarks.
This industry dilemma was also confirmed by Zhang Liucheng, the former Vice President of Dongming Petrochemical and the current Secretary-General of the Shandong Advanced Chemical Industry Development Promotion Association. He broke down the math for reporters: previously, when international oil prices hovered around $60/barrel, paired with a $10 discount, the landed cost of crude oil was only just over $50/barrel. Today, with international oil prices breaking through the $100/barrel threshold, not only has the crude price doubled, but additional costs like freight have risen in tandem. This has directly doubled the liquidity and cash flow requirements for these enterprises.
The surge in refining costs has dragged the processing profits of independent refineries straight into the abyss. Data monitored by J联创 (Sublime China Information) showed that for the week ending March 18, the theoretical profit for Shandong independent refineries processing imported crude oil plunged to -153 RMB/ton, a sharp drop of 553 RMB/ton from the previous cycle. The spot refining business has fallen into a state of comprehensive loss.
Beyond skyrocketing costs, the secondary sanction risks brought by geopolitical tensions could sever the lifeblood of these enterprises at any moment. This double whammy leaves the raw material end of Shandong’s independent refineries facing an unprecedented risk of “supply starvation.”
Reports from China Energy News indicated that in 2025, multiple Shandong independent refineries were placed on the U.S. sanctions list. The direct trigger for these sanctions was their deemed procurement of Iranian crude oil.
“The long-arm jurisdiction of the United States directly cut off these companies’ access to the USD settlement system. Sanctioned enterprises have basically lost their international trading capabilities, and their financing channels collapsed right after,” a former executive at Huifeng Petrochemical told a reporter from National Business Daily.
Zhang Liucheng expressed deep concern over this trend: once a company is blacklisted, banks dare not cooperate with them, immediately triggering a financing crisis. In the short term, the raw material supply for related independent refineries will be restricted. They may have to pivot toward Russian, African, or South American crude, requiring them to rebuild transportation and trade channels from scratch, thereby facing increased costs and the pressure of supply chain restructuring.
Passive Responses: Futures Hedging + Hoarding Inventory, Fighting to Hold the Baseline of Survival
Continuous losses on the spot side have forced independent refineries to step into the futures market.
“The delivery cycle for crude oil is generally around 40 days. The crude oil purchased today won’t officially be delivered for production until over a month later,” Zhang Lei (a pseudonym), a sales manager at a long-established refining enterprise in Shandong, explained regarding the natural lag in refinery procurement. In today’s highly volatile oil market, this 40-day window is more than enough to turn a profitable purchase into a catastrophic loss.
To hedge against price volatility risks during this prolonged cycle, futures hedging has become an absolute necessity for refineries. “Companies have dedicated futures hedging departments with personnel on duty 24/7 to monitor the market and execute trades continuously,” Zhang Lei learned from his colleagues in the futures department that the team often has to watch overseas markets in the middle of the night, only able to rest after the U.S. market closes around 2:00 or 3:00 AM.
This near-paranoid caution stems from the nightmare of the extreme “negative oil price” event in 2020.
“That was an incredibly bizarre period, and many refineries in Shandong lost massive amounts of money. At that time, as oil prices kept falling, some people tried to dilute the cost of high-priced inventory by buying low-priced crude. The result was that the more they bought, the more the price fell, until it straight up went negative,” Zhang Lei recalled. “Now, corporate strategies have become extremely pragmatic. Futures trading acts as a hedge against spot losses on one hand, and an attempt to claw back profits through crude oil trading on the other. If the spot market isn’t making money, they have to compensate through futures; in essence, it follows a logic very similar to stock trading.”
Aside from the battles on the futures screens, the management of physical spot inventory has also become a critical bargaining chip for refineries wagering on the future. An insider from an independent refinery with annual sales exceeding 60 billion RMB revealed to National Business Daily that their company’s crude oil storage capacity can reach 60,000 aan 70,000 tons. Even if the production department reports that the storage tanks are completely full, the planning and management department will still issue strict directives prohibiting the casual deployment of this low-priced stock.
Behind this operation is the “M+2” cycle commonly adopted by domestic refineries for crude oil procurement—the raw materials put into production by refineries in March were actually purchased back in January, when the purchase price was only about $60/barrel. Based on this cycle, the current shock of high oil prices will not heavily hit the production end of refineries until late April or early May.
Against this backdrop, lowering operating rates to slow down the consumption of low-priced crude has become a universal choice across the refining industry. The refined oil market weekly report released by J联创 on March 19 showed that as of March 18, the operating rate of atmospheric and vacuum distillation units at Shandong independent refineries was 62.84%, down 0.29 percentage points from the previous week. Excluding large-scale integrated refining and chemical projects, the operating rate for local independent refineries was a mere 58.42%, down 0.32 percentage points from the week prior.
In Zhang Lei’s view, this series of operations is essentially a “gamble” by enterprises on future oil prices: on one hand, they predict that oil prices still have room to rise, meaning consuming low-priced crude now would leave them facing even higher production costs down the road; on the other hand, it serves as a unified corporate stance toward the market—”If a business isn’t profitable, naturally, we should refine less and sell less.”
The Final Chapter: Regulatory Tightening + Dissipating Windfalls, The Old Model Collapses Completely
Under the weight of this round of soaring oil prices, the profit margins of private gas stations have been compressed to the absolute limit, and the windfall profit logic of the entire supply chain is disintegrating.
A salesperson from Huifeng Petrochemical disclosed that as of March 23, the wholesale price of No. 92 gasoline had skyrocketed to 9,700 RMB/ton, an increase of about 2,000 RMB/ton since the beginning of the month. This translates to a delivered cost of about 7.2 RMB/liter, while the retail price at independent social gas stations is generally only around 7.4 RMB/liter. Factor in other operating expenses, and private gas stations have almost zero room for profit.
Once upon a time, private gas stations and Shandong independent refineries formed a high-speed “money printing machine.” Xue Yu revealed the industry’s historical secret to massive profits: “The biggest difference between independent refineries and state-owned majors like Sinopec and PetroChina lay in the consumption tax stage. In the past, independent refineries frequently manipulated the consumption tax system. While they were actually producing gasoline and diesel, they would issue invoices classifying the products as asphalt or chemical compounds that are exempt from consumption tax—a practice known in the industry as ‘invoice shifting’ (变票). Relying on this maneuver, independent refineries could price their fuel 1.2 aan 1.5 RMB cheaper per liter than legitimate channels.”
But today, this long-standing industry loophole has nowhere left to hide. An insider from Jingbo Petrochemical stated to National Business Daily that with the continuous improvement of the national tax supervision and enforcement system, this “gray profit margin” has virtually ceased to exist.
The rise in compliance costs heralds the end of the era of windfall profits for independent refineries and private gas stations. Facing refined oil price caps and surging crude costs, many refineries and private gas stations have triggered a “cherry-picking” product substitution mode in order to survive.
Zhang Lei revealed this lesser-known survival logic within the industry to reporters: “Since No. 0 diesel can’t fetch a good price and isn’t profitable, we simply slash production or stop selling No. 0 diesel entirely. Instead, we pivot to producing No. -10 diesel or No. 95 gasoline, which yield higher margins.” He explained that the production costs for different grades of fuel are virtually identical, but the terminal retail prices for No. -10 and No. -20 diesel are higher, offering a much more attractive profit margin, which is why refineries prioritize high-margin products.
“Refineries have no other choice. If they don’t do this, they face bankruptcy,” Zhang Lei said. While this supply strategy secures a razor-thin profit margin for the refineries, it passes the pressure directly downstream, leaving logistics companies and agricultural machinery users stranded in a predicament of acute shortages of basic fuel supplies.
Exploring a Way Out: Under the Onslaught of New Energy, Can Supply Chain Integration Break the Deadlock?
If high oil prices and strict regulations are a sword hanging over the heads of Shandong’s independent refineries, then the rapid penetration of electric vehicles and the widespread expansion of urban rail transit are systematically dismantling the very soil upon which independent refineries and gas stations survive.
Zhang Lei felt the shockwaves of shifting commuter habits firsthand in Jinan. “After Jinan’s subway lines opened, they proved to be clean, convenient, and uncrowded. A ride of several stops costs only a few yuan, and it’s fast. Using Alipay linked with a transit code even gets you a 20% aan 30% discount.”
Clients have complained to Zhang Lei that employees who used to rely heavily on private cars for their daily commute now choose light rail and subways as their first choice. This has directly caused fuel sales at gas stations along those commuter routes to plummet by nearly half, with a universal contraction of at least one-third.
With the refining sector in decline, transforming toward fine chemicals and extending the value chain seems to be the only escape path for independent refineries. Yet, this path is likewise riddled with thorns.
Take Sinopec as an example: in 2025, its refining division contributed 132.851 billion RMB in operating revenue, but its corresponding operating profit was only 9.095 billion RMB, far lower than that of its exploration & development and chemical divisions. Moreover, in 2025, due to market price fluctuations for certain products and the shutdown or loss-making status of individual production units, Sinopec recognized a total asset impairment provision of 13.178 billion RMB.
Behind these massive asset impairments lies a painful industry-wide overcapacity crisis plaguing the petrochemical sector. Data from the China Petroleum and Chemical Industry Federation for 2025 showed that domestic silicone capacity expanded 1.4-fold over five years, while the operating rate for the polyether polyols industry sat below 50%. This structural overcapacity has severely distorted pricing mechanisms; remarkably, ethylene prices under an $80/barrel oil environment ended up flattening to levels seen when oil was at $50/barrel.
“The industry environment forces you to transition toward fine chemicals, but this path is incredibly difficult to tread. Relying on massive debt to fund a transformation right now is clearly unrealistic,” an executive who left a refinery last year to pivot into the new energy sector candidly told National Business Daily.
Zhang局成 (Zhang Liucheng) also pointed out that the core of refinery transformation lies in shifting toward the production of chemical raw materials like ethylene, propylene, and PX. Egter, the current prolonged downturn in the downstream chemical sector and the real estate market has led to a continuous slide in demand for plastics and chemical raw materials. Consequently, strategic expansions into extended value chains cannot translate into actual financial returns in the short term.
Amidst the wave of policy-driven capacity replacement, the Shandong independent refining industry has already shown a stark pattern of polarization. Xue Yu pointed out to reporters that Shandong has already shut down a large number of small-scale refineries to consolidate and implement massive 20-million-ton integrated refining and chemical complexes like Yulong Petrochemical, relying on ultra-long value chain layouts and anchoring a “reduce fuel, increase chemicals” transformation route. Egter, for legacy independent refineries such as Dongming Petrochemical and Jingbo Petrochemical, hamstrung by their existing production configurations, the pace of transformation remains slow, and their core businesses remain heavily tethered to traditional refining.
As terminal markets are relentlessly eaten away by new energy, and the industry navigates a harsh winter woven from global sanctions and high costs, frontline professionals like Zhang Lei know deep down that the era of wild, windfall profits for local independent refineries has quietly come to an end. In this life-or-death industry shakeout, only those who take the lead in executing deep integration across ultra-long value chains and survive the agonizing pains of transformation will manage to secure a precious ticket into the future energy landscape.