In a landmark move for China’s state-run oil industry, PetroChina is preparing to shutter its largest oil refinery in northern China, located in Dalian, around mid-2025. The Dalian Petrochemical refinery, which boasts a processing capacity of 410,000 barrels per day (bpd) and represents approximately 3% of China’s total refinery output, is set to undergo a phased shutdown that has already begun with the closure of part of the facility. The decision comes in the face of China’s growing refining overcapacity, softened fuel demand due to economic deceleration, and the electrification of the country’s vehicle fleet, which is progressively reducing the nation’s reliance on gasoline and diesel.
The shutdown marks the first major closure of a state-run refinery in China and underscores the challenges faced by the country’s refining sector. With a reported initial cutback of 210,000 bpd, or about half of the plant’s total processing capacity, the refinery is being gradually phased out under a plan that PetroChina, a subsidiary of China National Petroleum Corporation (CNPC), has yet to publicly comment on. Nevertheless, industry insiders confirm that the move is a culmination of various economic, environmental, and safety-related factors that have long pressured Dalian’s municipal authorities to reassess the viability of the refinery.
The facility, operating since 1933 and one of China’s oldest, has faced repeated calls for relocation following multiple safety incidents. A series of catastrophic events, including a large-scale oil spill in 2010, an explosion in 2013, and a fire in 2017, have raised concerns about the plant’s position near densely populated urban areas. Calls for safety improvements have grown, with local residents and officials demanding action to reduce the hazards associated with maintaining such a high-risk operation near populated areas.
To address the concerns tied to Dalian’s current setup, PetroChina and Dalian authorities have developed an ambitious plan to build a new refinery and chemical complex on Changxing Island, roughly a two-hour drive from the city center. Announced in November 2022, the proposed 70-billion-yuan (US$9.84 billion) complex would host a new 200,000 bpd refinery and a 1.2 million tons-per-year ethylene production facility. However, despite this framework agreement, the project remains in the pre-feasibility stage, with no final investment decision from PetroChina. Sources close to the project reveal that while PetroChina and CNPC have voiced support for the relocation, the practical and financial complexities of a transition of this scale mean there is still some uncertainty surrounding the timeline and scale of the Changxing Island project.
China’s refining sector has grappled with overcapacity for years, as expansion projects from both state-owned and private companies have added to the glut. The country’s total refining capacity reached approximately 19 million bpd by 2023, while domestic fuel consumption growth has slowed. In part, the weakened demand for fuel stems from slowing economic growth, a trend observed across many industrial sectors, including refining. As China’s economic expansion has slowed in recent years, the refining sector is experiencing a similar cooling, exacerbated by the emergence of electric vehicles, which are expected to replace conventional gasoline-powered vehicles as the government emphasizes green energy and environmental sustainability.
To address these changes, some experts suggest that China’s state-run oil companies will need to prioritize efficiency over expansion, divesting from underutilized assets and enhancing production in strategically critical areas. While the Dalian refinery’s closure marks a pivotal shift, it is also seen as a bellwether for broader structural reforms within China’s state-owned enterprises (SOEs), especially in heavy industries that are facing overcapacity challenges.
For years, local Dalian residents and officials have pushed for the plant’s relocation, particularly in the aftermath of major industrial accidents. The push gained further traction after the 2010 oil spill, which saw thousands of tons of oil leak into the Yellow Sea following an explosion at the plant. In 2013, a fire caused by a pipeline explosion at the refinery claimed lives and resulted in significant property damage, while a subsequent fire in 2017 further fueled public calls for relocation.
This history of safety incidents is a major factor driving the Changxing Island project, which aims to reduce potential risks associated with having a large-scale refinery within close proximity to urban populations. Moving the refinery operations to the island would place the plant in a less populated area, alleviating the risk to residents and potentially lowering PetroChina’s liabilities related to industrial hazards. Additionally, the Changxing Island complex is expected to feature modernized safety and environmental protocols, aligning with Beijing’s aim to reduce the environmental footprint of heavy industries across the country.
The impending closure of the Dalian refinery will undoubtedly have economic ramifications for the local economy. The refinery currently provides thousands of jobs directly and indirectly through supply chains and related industries, and it is likely that the shutdown will impact both employment and tax revenues. To mitigate the economic impact on Dalian, CNPC has announced potential reskilling initiatives to help affected workers transition into other roles within the organization or across the broader energy sector.
Despite these efforts, industry analysts caution that the closure could weaken the economic stability of northeastern China, where industrial jobs have historically formed the backbone of local economies. The Changxing Island project, if approved and constructed as planned, would absorb some of the displaced labor from Dalian, but it remains unclear if it would generate the same level of economic benefits as the original Dalian facility.
While the Dalian refinery’s final shutdown is scheduled for mid-2025, PetroChina has already been scaling back operations at the facility over the last year. In October 2023, the company decommissioned a 120,000 bpd crude distillation unit (CDU), one of the facility’s primary processing units. Earlier this month, another CDU, with a processing capacity of 90,000 bpd, was indefinitely shut down, leaving only a 200,000 bpd CDU in operation. These phased reductions align with the timeline established by CNPC, which reflects a coordinated approach aimed at minimizing disruptions while the Changxing Island project undergoes the planning and approval stages.
PetroChina’s planned shutdown of the Dalian refinery is part of China’s broader push towards a more efficient and environmentally sustainable energy sector. The Chinese government has set ambitious targets to peak carbon emissions by 2030 and achieve carbon neutrality by 2060. In line with these goals, state-owned companies are gradually reducing their reliance on traditional, emission-heavy refining operations, instead exploring renewable energy solutions and cleaner, integrated production complexes. This shift includes investments in electric vehicle infrastructure and renewable energy sources, while scaling back facilities that contribute heavily to China’s overall carbon footprint.
For PetroChina and CNPC, this transition is crucial to remaining competitive as the global energy landscape transforms. While they have yet to make a final investment decision on the Changxing Island refinery, sources close to the project believe it is a strategic fit for China’s new energy objectives, given the intended integration of petrochemicals production and enhanced environmental standards.
Industry observers are closely watching the Dalian refinery’s closure as an indicator of how China might tackle similar cases of aging infrastructure across the country. The decision to shut down a refinery of this size is uncommon, particularly in a nation with such high energy demand, and signals China’s willingness to prioritize safety and environmental concerns over pure production capacity. International energy markets have also taken note, as any changes in China’s refining capacity can impact global crude oil demand and pricing.
Additionally, the closure reflects a shifting economic model in China, where traditional, heavily industrialized sectors are being restructured to align with Beijing’s vision for a sustainable and high-tech economy. As a result, China is expected to reduce its demand for imported crude oil in the coming years, with potential repercussions for major crude-exporting nations, particularly those heavily reliant on the Chinese market.
