The year 2009 was a harsh year for China's independent refineries. Stung by weak oil products demand amid slower economic growth, they recorded sharp declines in profit margins in the year. The raise on fuel oil consumption tax early of the year further squeezed their refining margins. They faced fiercer cut-throat competition from Sinopec and PetroChina, whose refineries enjoyed unusually lucrative refining margins after the launch of new oil products pricing mechanism.

However, future would be no more prosperous for them. The Chinese government promised to cut carbon dioxide emission by 40-45% before 2020. That was another bearish signal for the independent refineries, a great majority of which are environment-unfriendly, energy-intensive and low-efficient.

In the Beijing authority's petrochemical industry stimulus program, those low-efficient refining units with capacity below 20kb/d shall be weeded out before 2011; those between 20kb/d and 40kb/d shall be shut down; no new refining projects under the name of bitumen or heavy oil processing shall be given green light. That means China may close down 60 teapot refineries, with accumulative refining capacity of 440kb/d.

How will the independent refineries adapt themselves to the new environment? Who will survive? Who will be phased out? C1's China Teapot Refinery Monthly will update government's relevant policies, report the strategic adjustment of the independents, and trace their feedstock purchase, oil production and products sales.

China has nearly 2-mil bpd of independent refining capacity by end-March 2010, C1's preliminary data showed. The figure was about 10% higher than the level in early 2009. The average capacity of an independent refinery is about 20kb/d, up nearly 10% year-on-year also.

However, the number of independent refineries has been shrinking, from 99 to about 95, as more refineries have been acquired by state-owned oil majors like CNOOC and China North Industries Group Corporation, which have crude import licenses.

As C1's survey showed, the expansion of the independent refineries has never stopped. During 2010-2015, based on current plans, they would add 900kb/d capacity in total. Over 400kb/d will be added in 2010 alone. However, since refining margins were puny in 2009, will these new units come on line as scheduled? How will they be fed? You will get your answers in C1's new China Teapot Refinery Monthly report.