China Refining Industry Outlook

and Oil Demand Peak

March 25, 2019Xiaoming KE

CONTENTS 1

In the future: oil demand growth shifting from fuel-driven to petrochemical feedstock-driven

3 Transformation and upgrading of refining industry in China under a new round of investment

2

The refining industry in China ranking among the top in the world

The refining industry in China ranking among the top in the world

The refinery capacity in China ranks among the top in the world, and is still in expansion

4

-. - -

.-. - -

l In 2018, China’s refinery capacity came to 16.8 Mb/d. New capacity mainly came from independent refiners.l In response to the upgrading of oil quality, refineries in China are becoming increasingly complex.

75%

57%

39%

25%

43%

61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000-2008 2008-2014 2014-2018

The share of new capacity from independent refiners is increasing

State-owned refinery

5622

1675478%

70%66%

72%

60%

62%

64%

66%

68%

70%

72%

74%

76%

78%

80%

15000

25000

35000

45000

55000

65000

75000

85000

95000

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Stages of growth in refinery capacity (kb/d)

Capacity Capacity increment

Refinery utilization

Independent refinery

The increasing crude oil processing meets domestic demand

5

l By 2018, China’s refining throughput was 12.1 Mb/d, and the dependency on imported crude oil came to 70.8%.l Since the release of imported oil quotas in 2015, the growth rate of refining throughput has risen from 4.1% to 5.4%.

l The utilization rate of independent refineries increased from 30% in 2014 to 60% in 2018, and the share ofimported crude oil in processing feedstock increased from 21% to 71%.

%

The crude oil processing volume is rising (million b/d)

3 15 0 2

AAGR 8.3%AAGR 8.1%

AAGR 4.3%

AAGR 5.8%

crude oil processing volume

Dependency on imported crude

21% 24%

45%58%

71%

55% 58%

49%37%

25%

0%

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

10 0%

2014 2015 2016 2017 2018

The bottleneck of crude oil for independent refineries is eliminated (10,000 tons)

4 3 3Imported crude Domestic crude Other sources

Urgent issue: large numbers of refineries with small average capacity

6

l By 2018, the average refinery capacity in China was only 87 Kb/d, which is only half of the global average level.l Excluding the outdated capacity of less than 40kb/d, the average utilization rate could be around 82% in 2018.

54

70

49

15

4

0 100 200 300 400 500 600 700

�40

40-100

100-200

200-400

≥400

Number of refineries

2018 China refinery capacity distribution(1,000 b/d)

18,133 16,754

6,217 5,002

3,484 87

0

50

100

150

200

250

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

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The top 5 oil refining countries (1,000 b/d)

Total capacity Average refinery capacity

U.S. China Russia India Japan

In the future: Oil demand growth shifting from fuel-driven to petrochemical feedstock-driven

8

Outlook for demand-The key driver for China oil demand is shifting from fuel to petrochemical feedstockThe rough picture:l The future oil consumption will peak due to factors such as economy, population, fuel economy and EV deployment.

l Compared with the relative rigid demand of jet fuel and petrochemical feedstock, gasoline and diesel are more

likely to be replaced.

l There is still uncertainty about vehicle fuel economy improvement and the development of electric vehicles.

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10

11

12

13

14

15

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17

18

2018

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The factors affecting oil demand are changing (million b/d)

20

18

Alte

rnativ

e

s Alte

rnativ

e

sTra

nsport

Petro

chem

ical

Avia

tion

Fuel e

fficie

ncy

EV

20

25

-

20

30

EV

Fuel e

fficie

ncy

Avia

tion

Petro

chem

ical

Tra

nsport

20

50

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Demand for oil and oil products (million b/d)

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Chemical light oil: 3.7Around 2050

Diesel: 3.5Around 2015

Gasoline: 3.2Around 2025

Kerosene:1.8Around 2045

Oil: 14.5

Light

chemical oil

Oil (right

axis)

Gasoline Diesel Jet fuel

Driver shifting--Fuel-oriented oil consumption in China is decreasing

9

l China's oil demand reached 12.4 million b/d in 2018. What’s more, the oil consumption structure has changed or is about to change.

l Instead of transportation fuel, petrochemical feedstock will become the major refining product by 2050.

37%53% 51% 47%

35%

9%

15% 16% 25%36%

26%

12% 11%8% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

The trend of oil consumption structure in China

G NO ITransport Industry Daily useTransport

0: : 120 2 5 2 . 1 2 20 0 2 0 2. 252 .1 . 021 .42 :3 1 . C. :

: 12 : 22 52 4 : 4 12 . 1 3: 0 : 5 4 . 1 1.2E : 0: : 0 2. 4

Transportation ,52 4 : 5 0. : 2 5 1 : 2 52 4 : 5 :3 :

0: :

: 2 0 . 25 0 2 : 2 5 2 1 : 2. . 21 . 1 3 2 20: : 2 4 : 21

, . 2 :12 05. 42 . 1 52 12 2 : 2 :3- .002 2 . 2Petrochemi

calAgriculture Constructio

nOthers

Macro driver- Large potential of per capita consumption and the gradually emerging demographic impact

10

l Compared with other countries, the energy consumption per capita GDP of China is still rising.l In the future, China's GDP growth will slow down, but the quality of economic growth will be improved. l The fertility rate is declining in China and the population will peak before 2030.

13.7 14.2

13.4

12%

25%

10.0

11.0

12.0

13.0

14.0

15.0

2015 2020 2025 2030 2035 2040 2045 2050

The population in China is aging (100 million)

��� ����-�Total population

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 10000 20000 30000 40000 50000 60000

Kg per capita

US$ per capita

GDP per capita & Energy consumption per capita

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Oil consumption peaked

Germany Japan Korea U.S. China Elderly population

The population densityPeople/km2 6000-8000 100-500 4-35

300

(livable)

Natural resources Extremely

scarce

Rich in coal

Lack of oilRich in oil & gas

Rich in coal

Lack of oil

Proportion of fuel tax 60%-80% 40%-70% 10%-20% 40%

Industrial driver-Broad prospects for China auto industry in the take-off period

l Currently, the vehicle ownership in China was 130 vehicles per 1000 people, which is still in the take-off period of

auto industry compared with developed countries.

l Considering the high density of population and the lack of oil and gas resources in China, the saturation level of

vehicle ownership will not be too high. Even so, the vehicle ownership will still double that of now by 2050.

0

100

200

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400

500

198

0

198

5

199

0

199

5

200

0

200

5

201

0

201

5

202

0

202

5

203

0

203

5

204

0

204

5

205

0

Forecast of passenger vehicle ownership in China

(million)

2009: 20 per 1000 people

2015: 100 per 1000 people

2017: per 1000 people , 180 million

2050: 350 per 1000 people , 470 million

11

Industrial driver-Improved fuel economy offsets the growth in transportation fuel demand

12

7.56.9

54.5

3.2

2

3

4

5

6

7

8

9

10

11

2005 2010 2015 2020 2025 2030

Fuel consumption rate of new vehicles continues to decline�L/100km�

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Stage I&II Stage III Stage IV Long-term planning

l Compared with Japan and Europe, China still has great potential to improve the fuel economy. Downsizing and hybrid technologies are feasible.

l If the fuel economy target of China is on schedule, it will save about 100 million tons of oil by 2050.

0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

����� ����

100 million tons of oil

Improving fuel economy

Significant oil savings from fuel economy improvements (million tons)

Japan U.S. ChinaCurrent fuel economy

Alternative driver-Diversity of oil alternatives

13

l Currently, natural gas and coal-to-liquid, coal-to-olefin are the main oil substitutes. l After 2025, electric vehicles will replace natural gas as the first alternative.

NG36%

EV7%

Biofuel9%

Methanol1%

Coal-to-oil12%

Coal chemical industry

35%

2018

NG12%

EV58%

Biofuel7%

Coal-to oil3%

Coal chemical industry20%

2050

4%

9%

16%

25%

34%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

5000

10000

15000

20000

25000

30000

35000

2015 2020 2030 2040 2050

The consumption of oil alternatives is increasing �kb/d�

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48

1320

282

4360

6260

The share in oil consumption

NG EV Biofuel Methanol

Coal-to-chemicals

Coal-to-oil

14

Electric vehicles-The leading role of China in the global market �

Targets for EV development in major countriesl In 2018, China EV sales accounted for about

half of global EV sales.Ø EV Sales: 1.26 million, market penetration rate:

4%Ø EV ownership: 3.1 million, accounting for 1.6%

of the total domestic vehicle stock

l With clear government targets, EV may become the direction for the future auto industry in China.

Country 2020 2025 2030 Technology roadmap

China5 million

Penetration rate: 7%

20 millionPenetration rate:

15%

80 millionPenetration rate:

40%Mainly BEV

US 1.2 million / / BEV & PHEV

Japan / / Penetration rate: 50%-70% BEV, HEV & PHEV

Germany 1 million / 5 million BEV &PHEV

France 2 million / / Clean energy vehicles

UK 1.6 million / / Ultra-low emission vehicles

Norway 400,000 100% zeroemission / BEV/HEV/PHEV/FCV

58

20

24

13

2010 2014 2015 2016 2017

Global sales of BEV+PHEV (10,000)

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115

7454

32

OthersChina U.S. Europe

123

76

72

40

2010 2014 2015 2016 2017

Global ownership of BEV+PHEV (10,000)

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311

198

124

70

China U.S. Europe Others

Electric vehicles-The decisive period: 2025-2030 �

15

l 2025: EV will reach cost parity with conventional vehicles, which makes large-scale promotion possible.

l After 2030: Level 5 autonomous driving will be ready to be commercialized.

l There is still uncertainty in the development of EV.

Battery material• Scarcity of lithium and

cobalt resources

• Technology progress

Tax reform issues• fuel tax• Purchase tax reduction

for EV

Technologies for car sharing

• Sensing techniques

• Infrastructure such as high-precision maps

• Revisions of policies and regulations

Infrastructure• Charging facilities• Charging service

economy• Impact of peak charging

load on the grid

Technology roadmap for EV development

0

200

400

600

800

1000

1200

0

100

200

300

400

500

600

700

800

900

2010 2015 2020 2025 2030 2035 2040 2045 2050$/

kwh

km

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1G lithium battery

2G lithium battery

Next generationLithium metal

Fuel cell battery

Lithium iron phosphate

NCMNickel-rich NCMLi-rich manganese based cathode

Solid state lithium metal batteryLithium sulfur batteryLithium oxygen battery

400-500km, no mileage anxiety

100$/kwh, EV will reach cost parity with conventional vehicles

High specific energy and safer

All-electric-range Battery cost-right axis

Industrial driver-Significant growth of oil demand in petrochemical industry

Naphtha84%

CPP/DCC

2%

MTO5% CTO

9%

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Naphtha61%

Coal-based Naphtha1%

CPP/DCC1%

MTO7%

CTO22%

Ethane5%

LPG2%

Acetylene1%

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l In the future, with the improvement of living standards, auto, home appliances, textiles and real estate industries in China will continue to develop. Significant growth is expected in ethylene and PX consumption.

l Despite the diversification trend, Ethylene feedstock will still be dominated by petroleum-based feedstock.

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5230

7000

77008000

1997

2605

34433793 3800

10

1010

2010

3010

4010

5010

6010

7010

8010

9010

2015 2020 2030 2040 2050

Ethylene and PX demand (10,000 tons)

������� ��PX���

Changes in feedstock structure for ethylene

ethylene equivalent consumption

PX equivalent consumption

13

Transformation and upgrading of refining industry in China under a new round of investment

18

Advanced capacity will replace outdated capacity in the future

l China will have 4.32 million b/d new capacity and phase out 2.1 million b/d backward capacity before 2025.

l The total capacity will reach 18.8 million b/d by 2025.

New independent

refineries49%

Traditional independent refineries2%

State-owned refineries

49%

Shares of new capacity during 2019-2025

900

4320

790

2630

-460

-2100-1640

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

2019 2020 2025 2019-2025

Changes of capacity in China (1,000 b/d)

���� ����New capacity Phasing-out of outdated capacity

New capacity will be more concentrated, larger and more integrated

19

The new capacity is mainly located in bases in the eastern coastal areas.

l Under competition and the pressure of environmental protection, new capacity will be larger, more concentratedand integrated, and be more involved in the export market.

l Crude oil will be fully used in the processing.

400 400

320

400

87

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50%46% 44%

50%

37%

66%

24%

12%

61%

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Hengli Zhejiang Petrochemical

Southern China

Huizhou, Guangdong

Gulei II

Ningbo, Zhejiang

Lianyungang, Jiangsu

Changxing Island, Dalian

Panjin, Liaoning

Sino-Kuwait, Zhanjiang

Caojing, Shanghai

Caofeidian, Hebei

Shenghong

Current national average level

Refining capacity(kb/d)

Yield of petrochemical feedstock

Yield of refined oil

19

Refineries are seeking a way out according to their own characteristics

Expansion: 15 Mtons/year refining capacity and 1.2 Mtons/year Ethylene capacity

… …Overall optimization to produce petrochemical feedstock

State-owned existing enterprise

Expansion: 20 Mtons/year refining capacity, 1.4 Mtons/year Ethylene capacity and 5.2 Mtons/year PX capacity

… …The adoption of Diesel HC process

Integratedindependent enterprise

Expansion: 16 Mtons/year refining capacity, 2Mtons/year Ethylene capacity and 1.6 Mtons/year PX capacity

… …The adoption of H-oil process and cancel FCC units

State-owned new enterprise

Phasing-out: outdated capacity less than 2 Mtons/year

… …Expansion: 30 Mtons/year integrated units

Localindependent refineries

Transformation path

Emission reduction from the source

Process control enhancement

End treatment

IOT in refineries

Process optimization

Monitoring of operation

Environmentally friendly & Digital

20

21

Increasing influence of China in the Asia-Pacific refined oil export market

l In 2018, China's refined oil exports increased by 1.9 times compared with 2010 and became the fourth largest exporter in the Asia-Pacific region. (Top 3: Korea, Japan and India)

l Due to the low yield of refined oil in new capacity, the net export of refined oil will not increase much by 2020-2025.l In the future, large refineries in coastal areas will target both domestic and international markets.

6%

7% 8%

10% 10%

11% 11%

0%

2%

4%

6%

8%

10%

12%

-200

0

200

400

600

800

1000

2005 2010 2015 2016 2017 2018 2019 2020 2025

Outlook for China's refined oil import and export (kb/d)

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Import

Export

The share of import & export in Asia-Pacific market (right axis)

A more opening-up refining market in China welcomes cooperation in various fields

Investments overseas

• Yanbu Aramco Sinopec

refinery put into operation in

Saudi Arabia

• The “Belt and Road Initiative”

boosts oil and gas cooperation

among countries along the

route

Domestic refining

• PDVSA-CNPC Jieyang refinery is

under construction.

• Saudi Aramco joins Huajin

Petrochemical and Zhejiang

Petrochemical.

• BASF plans to build an integrated

petrochemical base in Guangdong

Retail market

• BP will build 1,000 gas stations in

China

• Saudi Aramco plans to enter the

retail market in Zhejiang

Charging service

• Tesla has built supercharging

stations in 27 provinces and cities.

• Shell‘s first charging station was put

into operation in Tianjin in September,

2018.

• In January 2019, BP's first

supercharging station was put into

operation in Shanghai

Oil import quotas for

independent refineries

Crude oil import

refined oil exports will

become ordinary

Refined oil export

Relax market access and

scrap limits on foreign

holdings

Refined oil sales

Coming soon……

Refined oil pricing mechanism reform

22

Thank you