In the fourth quarter of 2017, we held a conference call for thousands of people. At that time, we believed that a group of companies with a market value of 100 billion yuan would rise, which was based on the rise of Darefining Chemical. Looking back now, we have seen a group of excellent companies entering the ranks of 100 billion market capitalization. The next pace may slowly enter the threshold of a market value of 200 billion. My personal general judgment is that Wanhua should be the first among all chemical companies to stand on the market and stand firm in a market value of 200 billion. Perhaps within one to two years, I believe that Zhejiang Petrochemical's controlling shareholder Rongsheng Petrochemical , I think it is likely that it will also have a market value of 200 billion yuan. Indeed, according to our 17 years of research, a relatively fast way for chemical enterprises in developing countries to become bigger and stronger is that there are ten companies in the global chemical market, nine of which have large-scale chemical devices. shows that if companies in developing countries want to catch up with developed countries, developing large-scale devices is the only way to go. At present, in terms of large-scale cracking devices, I went there on June 30. Indeed, the second phase plan has undergone a relatively obvious change compared with the first phase. What is this obvious change? The first phase is 20 million tons of oil refining, 1.4 million tons of ethylene plus 4 million tons of PX. The second phase is exactly the same as the first phase, and another set of 1.4 million tons of ethylene is added. I roughly calculated that the yield of the entire chemical product may reach 70%. In addition to making crude oil directly into chemical products, cracking and ethylene to make chemical products, it should be said that in the world, there is no such high chemical product yield and such a large device. I think it is not an exaggeration to describe the equipment like Rongsheng and Zhejiang Petrochemical, which is located around the world with such a large scale and such a high chemical yield. This is a new path for development under the background of the energy revolution and the new energy revolution. As solar energy, energy storage, and lithium battery electric vehicles form a closed loop, especially now that both ends are gradually mature, the cost of being stuck at the energy storage end is relatively high. If it can develop, I think an energy revolution will occur. It is the industrial chain of crude oil, oil refining, gasoline and diesel, and internal combustion engines, which may be replaced by the industrial chain I just mentioned. In this way, the role of crude oil may have been 70% of energy and 30% of materials before, but later it will be transformed into 30% of energy and 70% of materials. It may gradually complete the transformation of this role within the next ten years, or within ten to twenty years. In other words, if you want to build a large refining and chemical device and gain the initiative in the future industry development trends, you must turn yourself from an energy provider to a material provider. This is in line with the development laws, and Zhejiang Petrochemical is doing a pretty good job in this regard.
In addition, during roadshows, people often ask me what are the barriers to large-scale refining and chemical equipment? I said that the barriers to large-scale refining and chemical equipment are mainly in two links. Technology has no barriers, why does technology have no barriers? Because all our technologies come from patent authorization, either from domestic patent providers or from foreign countries. Where are the main barriers? I think one is policy support. For example, the entire investment of the Rongsheng Zhejiang Petrochemical Phase II installation is about 200 billion yuan, and its own capital is about 54 to 55 billion yuan. This is obviously capital-intensive. Commercial banks are still willing to compete for the remaining part, which is financial support. What is the most critical barrier to ? It is policy-based. Whether you are allowed to do it is the biggest barrier. I have read the memoirs of Formosa Plastics Wang Yongqing. In 1970s, Formosa Plastics was done from bottom to top, and when it reached a certain level, he had an idea, I wanted to build a large-scale refining device. But the Kuomintang did not allow it at that time because at that time, Taiwan was operated by state-owned enterprises such as , , Sinopec, and , and you were not allowed to operate it. After 20 years, in 1994, the Kuomintang of Taiwan relaxed and gave Formosa Plastics Petrochemical a license to allow entry into large-scale refining and chemical plants. After that, construction began. Construction began in the 1990s, and it was fully completed in 2007, with 25 million tons of oil refining and 3 million tons of ethylene.The same is true for our country. Such a group of excellent companies will emerge, which can achieve a market value of 100 billion yuan. In essence, the country has provided policy support, which I think is the most critical. Without policy support, allowing them to enter and allowing them to become bigger and stronger, there would be no such thing as these companies. This is the barrier to the first large-scale refining and chemical plant - policy. The second most important thing about is that there must be a large enough market in the local area. Why ? Like in China, there are definitely more than one or two large-scale refining and chemical devices, and there are already many. Because the domestic market is large enough, a large-scale refining and chemical device will be built, and some will be sold out, and a large part of it will be sold domestically, which is equivalent to being able to advance and retreat, ensuring that the products can be basically completely digested. The entire Asia-Pacific region was Japan before, South Korea behind, and Taiwan next. They have large refining and chemical devices, and it is a prerequisite for having a local market. In this case, large-scale refining and chemical devices can stand out because of the help of the local market. So, in my understanding of the barriers to large-scale refining and chemical equipment, the first is policy, and the second is that there is a relatively large market in the local area that can digest and accommodate products. Zhejiang Petrochemical has now made 20 million tons, another 40 million tons, and there are even three phases later, 60 million tons, etc., all of which are feasible. These feasible foundations are based on the two major foundations I just mentioned, which are my understanding of the barriers to large-scale refining and chemical equipment. In addition, as far as the development is concerned, I remember that I also proposed at a large-scale refining and chemical conference in 2017 that a market value of 100 billion is only a stage of the initiation of these companies. It can be expected that the free cash flow that these companies can use will be more than 10 billion, laying the foundation for Chinese chemical companies to catch up with the world's advanced chemical companies, because only they can use large-scale funds to invest in R&D. For example, LG Chemistry, a well-known South Korean refining company, started out as refining and gradually made achievements in electronics, chips, and semiconductors. So I think that the first step now is to go to the design of large-scale refining and chemical equipment, especially in the first and second phases of Zhejiang Petrochemical, whether it is Rongsheng or Tongkun. Next, who will go better and better in these large-scale refining and chemical equipment companies? It must be based on the existing foundation, further leap forward, moving towards new materials, and moving upward, which is the most critical driving factor for these large companies to take another step.
1. The leader in private refining and chemical under historic opportunities
1.1. Historic opportunities of private refining and chemical
The origin of private refining and chemical comes from the "13th Five-Year Plan" period, the country has relaxed private enterprises in thousand-ton refineries. From 2016 to 2018, the domestic refining and chemical industry ushered in a prosperous cycle, and private enterprises were enthusiastic about investing in the refining and chemical industry. It coincided with the upward trend of private polyester leading enterprises' profits after 2016, and they have accumulated funds to extend the upstream integrated . In this wave of refining and chemical investment peak, they have reached the forefront.
During the 13th Five-Year Plan period, the country formulated the "Petrochemical Industry Planning and Layout Plan", hoping to reverse the pattern of domestic petrochemical projects being dispersed and weak in competitiveness through more reasonable planning. The seven planned petrochemical bases are all located in areas with high economic development levels and excellent port conditions in the coastal areas: including the Shanghai Caojing, Zhejiang Ningbo and Jiangsu Lianyungang Base; Guangdong Huizhou and Fujian Gulei Base in the Pan-Pearl River Delta; Dalian Changxing Island in the Bohai Rim and Hebei Caofeidian Base.
This round of typical representative projects of private enterprises occupy the most favorable areas of the seven major petrochemical bases without exception. Typical projects include Hengli Petrochemical's 20 million tons Dalian Changxing Island project, Zhejiang Petrochemical's 40 million tons Zhoushan project and Shenghong Petrochemical's 16 million tons Lianyungang project.
In 2020, the first phase of Hengli, Zhejiang Petrochemical and Hengyi Brunei projects have been fully put into production and have begun to contribute profits to listed companies. In Q1 2020, under the dual influence of the decline in oil prices and the epidemic, state-owned refineries generally suffered losses, while private refining and chemical companies still made profits, which is a sharp contrast. Private large-scale refining and chemical projects have proved that the cost is lower than the existing refining and chemical projects, and the differentiation will be more obvious throughout the year.
However, the domestic refining industry is still in a state of deep surplus. In 2019, the domestic refining capacity was 860 million tons and the processed crude oil was 649 million tons, with an operating rate of only 75.5%. According to the 90% operating rate, the domestic refining capacity surplus is estimated to be about 20%. Domestic refining and chemical companies have to face the pressure of exporting more than 60 million tons of refined oil. The surplus of downstream products is spreading from refined oil to chemical products such as olefins and aromatics.
In this context, we expect that during the 14th Five-Year Plan period, the country's approval of new refining and chemical production capacity will be stricter. The private large refining and chemical enterprises that seized the opportunity before have occupied the advantage of coastal location. The project adopts the latest generation of refining and chemical technology, which is extremely competitive and scarce. Zhejiang Petrochemical will increase from 20 million tons to 40 million tons in the next year, and it is expected to increase the third phase of the project to 60 million tons in the long term, making it the project with the largest resources in this round of private refinery expansion.
1.2. The most policy-based large-scale private refining and chemical enterprise
China (Zhejiang) Free Trade Pilot Zone is a regional free trade park established by the State Council in the Zhoushan Archipelago New Area in Zhejiang in 2017. It will focus on commodities transfer, processing trade, bonded fuel oil supply, equipment manufacturing, aviation manufacturing, international maritime services, international trade and bonded processing with oil products as the core.
In March 2020, the State Council approved the "Several Measures on Supporting the Open Development of the All Oil and Gas Industry Chain of China (Zhejiang) Free Trade Pilot Zone", pointing to support the Zhejiang Free Trade Pilot Zone to carry out refined oil export business in moderation, and allow existing qualified refining and chemical integration enterprises in the Zhejiang Free Trade Pilot Zone to carry out trials of non-state-owned trade exports of refined oil, and arrange the export quantity as appropriate according to annual conditions.
Domestic refined oil exports are currently subject to a quota system. In 2019, only state-owned enterprises such as Sinopec , CNOOC , and Sinochem have obtained quotas. Since local and private refineries have lagged behind state-owned enterprises such as Sinopec and Sinopec in the construction of refined oil distribution network, restrictions on the export of refined oil have put huge operating pressure on local and private refineries. In April 2020, Zhejiang Petrochemical has successfully obtained a quota of 1 million tons of low-sulfur marine fuel oil, and it is expected that the export quota of gasoline and diesel will be liberalized in the future. In July, the company obtained the qualification for non-state-owned trade export of refined oil, paving the way for Zhejiang Petrochemical's flexible production and export sales of refined oil.
1.3. Zhejiang Petrochemical will form a private enterprise holding, and the equity structure of a three-party joint venture between state-owned enterprises and foreign enterprises
Currently, Zhejiang Petrochemical's equity structure is 51% holding, Rongsheng Petrochemical (private enterprise) 20%, Juhua Group (state-owned enterprise) 20%, and Zhoushan Haitou (state-owned enterprise) 9%. Zhoushan Haitou's shares are to be transferred to Saudi Aramco (foreign enterprises), which will form a three-party joint venture equity structure of private enterprises, state-owned enterprises and foreign enterprises in the future, which is conducive to the integration of multi-party resources.
main controlling shareholders, Rongsheng Petrochemical and Tongkun Co., Ltd. have a huge PTA and polyester industry chain, which can form a full industrial chain synergy with Zhejiang Petrochemical from oil to silk; Juhua Co., Ltd. is a large state-owned chemical enterprise in Zhejiang Province, representing the support of Zhejiang Province's state-owned assets; Saudi Amei is a global super crude oil and refining giant, which can bring the company the coordination in crude oil import, refining technology, refined oil and chemical sales and trade.
In the sales of refined oil, Zhejiang Energy Group and Zhejiang Petrochemical jointly established Zhejiang Petroleum Co., Ltd., Zhejiang Energy Holdings 60% and Zhejiang Petrochemical 40%. Zhejiang Energy Group is a large state-owned power, oil and gas and energy service giant in Zhejiang Province. The joint venture will build hundreds of gas stations in Zhejiang as an important sales channel for Zhejiang Petrochemical's refined oil.
In terms of technological development of crude oil to chemicals, Saudi Aramco and Saudi Arabia's third-generation crude oil-making chemical technology has achieved a direct conversion rate from crude oil to chemicals of nearly 50%. The fourth generation technology is the "thermocrack oil-making chemical" technology jointly developed by Saudi Aramco, CB&I and CLG. It can increase the conversion rate of direct production of crude oil into chemical products to 70%-80% through the development of hydrocracking technology.
2. Zhejiang Petrochemical will be the most competitive integrated refinery in China
Compared with domestic existing refineries, Zhejiang Petrochemical has a large installation scale and a leading technology; it is located in the core position of East China and has significant location advantages. Its major shareholders can digest PX and ethylene glycol nearby. In terms of policy support, the Zhejiang Provincial Government has built public facilities, provided 8 million tons of coal indicators, and built a retail network for refined oil. After Zhejiang Petrochemical is completed, it will become the most competitive refinery in China.
2.1. Overall design planning, the proportion of olefin aromatic hydrocarbons is high, and the scale advantage is significant. Zhejiang Petrochemical's 40 million tons refining and chemical integration project is designed in an overall plan. The first phase focuses on maximizing aromatic hydrocarbon production capacity, and is equipped with large ethylene equipment to make full use of light hydrocarbon resources; the second phase plan maximizes the production of ethylene and downstream products. Four sets of 10 million tons of normal pressure reduction devices have strong adaptability in processing crude oil. The first phase of the design can process high-sulfur medium-quality and high-sulfur high-acid crude oil, and low-priced "opportunity crude oil" can be processed according to the supply of market crude oil.
Zhejiang Petrochemical's initial design total scale was 40 million tons/year refining + 10.4 million tons/year aromatic hydrocarbons (including 8 million tons PX) + 2.8 million tons/ethylene. The completion scale of the first phase is 20 million tons/refining + 5.2 million tons/aromatic hydrocarbons (including 4 million tons PX) + 1.4 million tons/ethylene, that is, the yield of refined oil is 42%. The first phase of heavy oil processing uses the combination mode of fixed bed residue hydrogenation + heavy oil catalytic cracking + coking; the second phase of slurry bed residue hydrogenation scheme will be adopted. The downstream products of some chemical industry in the first phase are mainly EO/EG, polyethylene and styrene; the downstream of propylene are mainly acrylonitrile, polypropylene and phenol acetone, and a 600,000-ton propane dehydrogenation device is equipped with a fully utilized LPG produced by the refinery. In terms of public works, seawater desalination, pulverized coal boilers and coal coke are used to produce gas, and the cost of producing hydrogen is relatively low.
Zhejiang Petrochemical Phase II plans to add a set of ethylene and expand the output of aromatic hydrocarbons. It plans to adjust the overall to 40 million tons/year refining + 8.8 million tons/year PX + 4.2 million tons/year ethylene, and the proportion of chemical products will be further increased. According to the ratio of ethylene and aromatic products in the second phase, it is expected that Zhejiang Petrochemical Phase I will also have room for further optimization and increase chemical products.
2.2. Downstream integration supporting advantages
Zhejiang Petrochemical's main shareholder Rongsheng Petrochemical . Its Yisheng Group, which is owned by its controlling shareholder, has a PTA production capacity of 13.5 million tons, which will reach 20 million tons in the long term. Rongsheng Petrochemical also has a polyester production capacity of 2.55 million tons and is continuing to increase. Another shareholder, Tongkun Co., Ltd., has a PTA production capacity of 4 million tons, which will reach 9 million tons in the long term; and has a polyester production capacity of 6.4 million tons, which will reach 10 million tons in the long term. The two major shareholders can fully digest their production capacity of PX and MEG. In terms of other chemical products such as polyolefins, the Yangtze River Delta region is the most active chemical trading and application market in China.
In addition, Rongsheng Petrochemical has a 2 million tons aromatic hydrocarbon device (including 1.6 million tons of PX) in Ningbo CICC, which adopts the fuel oil and naphtha feed route. If the upstream refining end can be opened, CICC Petrochemical can also be expanded into a set of refining integrated devices. In the downstream of
, Zhejiang Petrochemical adopts a cooperative model to further dig deep into the deep processing of chemical products and enhance the added value of the products.
Zhejiang Petrochemical and Demei Chemical established Derong Chemical (50:50), and conducted deep processing of 500,000 tons of cracked C5 and 480,000 tons of cracked C9 in Zhejiang Petrochemical Project. A 500,000-ton/year cracked carbon five-district separation device, a 200,000-ton/year carbon five-district hydrogenation device, a 480,000-ton/year cracked carbon nine-district hydrogenation device, a 70,000-ton/year pentadiene resin device, a 100,000-ton/year DCPD resin hydrogenation device and a 60,000-ton/year carbon nine-cold polyresin device will be built. Zhejiang Petrochemical and BP plan to build an acetic acid plant with an annual output of 1 million tons at a ratio of 50:50, and will use BP's CATIVA XL technology.
3, the world's leading refining and chemical integration base
3.1, the world's super-large refinery situation compares the refining capacity of
40 million tons, which can enter the top five in the world, and 60 million tons can rank among the top two in the world. Globally, the areas where refining capacity is concentrated are mainly the Gulf of Mexico, South Korea, Ulsan , India, India, , Singapore, Jurong Island and Saudi Yanbu.Its characteristics are that it has superior port conditions and is also facing the vast consumer market in the hinterland. Similarly, my country's Hangzhou Bay is also expected to form a refining and chemical production capacity cluster area of more than 100 million tons, radiating to the Yangtze River Delta area, which has included the relocation of Zhejiang Petrochemical, Zhenhai Refining and Chemical , Shanghai Petrochemical, Daxie Petrochemical and Gaoqiao Petrochemical.
rank
company
refinery location
oil refining capacity (10,000 tons/year)
1
Indian Xincheng Petroleum Company
Indian Jamnagar
6200
2
Venezuela Paraguana Refining Center
Venezuela Hudiwana
4830
3
Korea SK Company
Korea Ulsan
4200
4
UAE Abu Dhabi Refining Company
Ruves
4085
5
GS-Catis company
House
4085
5
GS-Catis company
South Korea Lishui
3925
6
S-Oil company
South Korea Aung San
3345
7
Saudi Aramco
Texas Porter Arthur
3015
8
Exxon Mobil company
Singapore Yayicha Bay Jurong Island
2960
9
US Marathon oil company
Texas Galveston Port
2855
10
ExxonMobil
United States Texas Bayton
2800
11
United States Marathon Oil Company
United States Louisiana Garville
2780
12
Saudi Aramco
Saudi Arabia
2750
13
13
Form-plastic petrochemicals Co., Ltd.
China Taiwan Mailiao
2700
14
Exxon US stock company
US Louisiana Baton Rouge
2510
15
Kuwait National oil company
Kuwait Ahmadi port
2330
16
Shell Oriental oil company
Singapore Wugong Island
2310
17
Sino Petroleum and Chemical Corporation Zhenhai Refining and Chemical Company
Ningbo Zhenhai
2300
Among these top-ranked projects in the world, Venezuela and the United Arab Emirates are refineries planned because of the crude oil production area, mainly focusing on producing fuel. Cardon and Amuay, the large refineries in Paraguana Refining Center in Venezuela, were originally developed from refineries within 3 million tons/year around 1950. It has reached a scale of 48.3 million tons/year. The main purpose is to convert Venezuela's heavy crude oil into fuel. However, due to the economic crisis in Venezuela, investment and raw materials are often insufficient, and the refinery load is not guaranteed all year round. The UAE Ruves refinery started with a 6 million tons/year installation, expanded to 15 million tons/year in 2000, and expanded to 40.85 million tons/year in 2015, and mainly produces fuel.
South Korea is neither a raw material place like the Middle East nor a consumer market like China and India. Its refineries are export-oriented. South Korea built large-scale refineries after 1990, and is known for its scale effect, with an average refinery scale of more than 20 million tons per year. Due to its proximity to the Chinese market, the rapid development of China's economy after 2008 brought huge market dividends to South Korean refineries. For example, after 2008, China imported a large amount of PX from South Korea every year. However, with the completion of this batch of thousand-ton refineries in China, Korean refineries that have lost the advantages of advanced consumption sites and equipment are gradually losing their competitiveness.
3.2. India Xincheng Honesty Industry: A rapidly developing market-oriented private refinery
India is the world's third largest oil consumer, and oil demand continues to grow. Private refineries have flourished as India's oil refining industry opens to private capital, accounting for 40% of India's oil refining capacity. India Xincheng Oil Company is India's largest private refining giant. Its refinery in Jamnagar has a crude oil processing capacity of 1.4 million barrels per day, corresponding to 70 million tons per year. It is the world's largest refinery with a complex coefficient of 21.1. At the same time, the company successfully put into production of 1.5 million tons of ethane feed in the United States in 2018 to increase the production capacity of ethylene.
Indian Xincheng Industrial Group is a super group spanning the energy and chemical industry, retail and telecommunications industries, and is the largest company with market value in India. The refining and chemical sector is still the most profitable sector and is the cornerstone of its development, helping it cultivate a rapidly growing telecommunications industry.
In recent years, in order to solve its high debt and maintain growth, India Xincheng has also launched cooperation with international giants. Saudi Aramco plans to spend US$15 billion to acquire 20% of the equity of India's Xincheng Refining and Chemical sector, and its valuation of India's Xincheng Refining and Chemical sector reaches US$75 billion. As a cooperation, India Xincheng will purchase 500,000 barrels per day of crude oil from Saudi Aramco. In terms of downstream distribution, the refined oil retail company of India Xincheng and BP, a joint venture (51:49), currently has about 1,400 gas stations in India with a valuation of US$2 billion. It plans to increase gas stations to 5,500 in the next five years.
3.3. Formosa Petrochemical: Zhejiang Petrochemical's "simplified version"
Formosa Petrochemical has a refining and chemical production capacity of 27 million tons and a ethylene production capacity of 3 million tons. Its main equipment was put into production in 1998, 1999 and 2007. Formosa Petrochemical mainly consists of three sets of 9 million tons of normal pressure reduction devices, two sets of 4 million tons of heavy oil hydrogenation devices, two sets of 4.2 million tons of residual oil catalytic devices, and three sets of 700,000 tons, 1.035 million tons and 1.2 million tons of ethylene devices respectively. Its aromatic components are handed over to Taihua Aroma Factory for processing, and the olefin components are also handed over to other subsidiaries of Formosa Plastics Group, so Formosa Plastics Petrochemical is equivalent to a "simplified version" of Zhejiang Petrochemical's production capacity.
When the crude oil price is relatively stable, Formosa Plastics and Petrochemical's net profit fluctuates approximately between RMB 5 and RMB 12 billion, and its market value basically fluctuates between RMB 150 and RMB 200 billion after the refinery construction is completed in 2009. In terms of valuation of
, Formosa Petrochemical's average ROE level in the past 10 years was 11.5%, while the average PB was 2.5 times, and PE fluctuated roughly around 20 times.
3.4. International comparison of Zhejiang Petrochemical
From the perspective of refinery production capacity planning, Zhejiang Petrochemical will far exceed Formosa Plastics Petrochemical after completion. After the third phase is completed, it will reach the scale of India's Xincheng Refining and Chemical sector, and will have a larger production capacity in chemical products and extend deeper to the downstream. From the perspective of industrial chain supporting facilities, Zhejiang Petrochemical is also better than Formosa Petrochemical and India Xincheng in the supporting facilities and industrial clusters of the downstream polyester industry chain.
Judging from the PB-ROE situation in Asian refineries in the past 10 years, Japanese refineries have the lowest ROE level, South Korean refineries are second, and Indian and Chinese refineries have higher ROE levels. Judging from our understanding of all sectors of private refining and chemical industry, the ROE levels of the polyester and PTA sectors in the past were roughly around 10%, while the ROE levels of private refining and chemical industry projects are expected to increase to more than 20%. The PB level of private large refining and chemical companies should be higher than that of other refineries in Asia.
