Refining

Sinopec Corp. is China's largest petroleum refiner and oil products producer, with its refining capacity ranking the 3rd in the world. The Company has 30 branches (subsidiaries), mainly located in China's southeast coastal area, middle and lower reaches of Yangtze River and North China, regions of the most dynamic and most developed economies in China. They have superior location, convenient transportation, and robust market demand. The Company's major oil products include gasoline, kerosene, diesel, lube oil, chemical light feedstock, fuel oil, solvent oil, petroleum wax, asphalt, petroleum coke, LPG, propylene and benzene products for refining.

Refining Configuration

The Company owns a wide spectrum of processing facilities including atmospheric/vacuum distillation, FCC, hydrocracking, delayed coking, catalytic reforming, aromatic separation, hydrofining, alkylation, gas fractionation, asphalt, hydrogen production, desulfurization and sulfur recovery, etc. Some refineries also have solvent deasphalting, solvent dewaxing, wax molding, solvent refining, lube oil hydrofining, and clay refining, etc.

Refining Capacity

By end 2007, Sinopec Corp.'s total processing capacity has reached 168million tonnes, up by 4.9% over the previous year. Major production units, including FCC, delay coking units, catalytic reforming units, hydrocracking units, hydrofining units for gasoline, kerosene and diesel, etc., achieved a certain increase of capacity compared with last year. The Company has pumped more technical support to enhance its high-sulfur crude processing capacity and has made great progress in generating good economic returns. The newly added high-sulfur crude processing capacity has reached 38.57 million tonnes since 2000. In 2007, the processing volume of high-sulfur crude was increased by 22.92% year on year. In addition, the company keeps increasing the total capacity of its refineries based on technology advancement. The total capacity will be further improved with the successive start-up of the ongoing projects including: Luoyang 1.4 million tpa delayed coking and 2.2 million tpa FCC feedstock pretreatment, Wuhan 1.2 million tpa delayed coking and 1.9 million tpa kerosene and diesel hydrofining, Qilu 1.4 million tpa delay coking, Anqing 2.2 million tpa wax oil hydrotreating, Jinling 2.6 million tpa wax oil hydrotreating, Maoming 1.8 million tpa wax oil hydrotreating, Shanghai 1 million tpa continuous reforming, Guangzhou 1 million tpa continuous reforming, Tahe 3.5 million tpa Heavy Oil Upgrading, Tianjin 12.5 million tpa expansion, Gaoqiao 8 million tpa revamping project for imported sour crude, Qingdao 10 million tpa refining project, Fujian 12 million tpa integrated refining and chemical project. Currently, 17 refineries under Sinopec have a capacity of more than 5 million tpa each, among which 8 refineries have a capability of over 10 million tpa each, including:

Sinopec Zhenhai Refining & Chemical Co., Ltd. (ZRCC) has an overall processing capacity of 20 million tpa and owns a 250,000 dwt terminal. It is Sinopec's major high sulfur and high TAN crude refiner.

Sinopec Maoming Company has a crude processing capacity of 13.5 million tpa, with a dedicated single-point mooring system for crude vessels up to 250,000 dwt. It is also a major refinery to process high sulfur and high TAN crude for the Company.
Sinopec Jinling Company has a processing capacity of 13 million tpa and 77% of the crude is transported through pipelines. It is one of the key refineries for high sulfur and high TAN crude processing.

Sinopec Qilu Company, adjacent to Shengli Oilfield and Qingdao Port, has a processing capacity of 10.5 million tpa. It is also one of the important refineries for high sulfur and high TAN crude processing;

Sinopec Shanghai Gaoqiao Company, with a processing capacity of 11 million tpa, is a fuel-lubricant-chemical feedstock refinery that manufactures lube oil and petroleum wax;

Sinopec Guangzhou Company, with a processing capability of 13.2 million tpa, is located in the center of the Pearl River Delta and enjoys convenient transportation. It is also one of the important refineries to process imported crude processing;

Sinopec Shanghai Petrochemical Co., Ltd., with a processing capability of 14 million tpa, owns its separate transportation infrastructures of ocean shipping, wharfs, roads and railways;

Sinopec Beijing Yanshan Company, with a processing capability of 13 million tpa, is a refinery for fuel,lube oil and chemical raw material.

Refining Technologies

Owing to years of self-development on technologies, the Company boasts a strong and experienced team in refining, R&D, engineering and construction. The Company has a series of major refining technologies such as RFCC, Catalytic Reforming, high-pressure hydrocracking, medium-pressure hydrocracking, hydrofining, residue hydrodesulfurization and lube oil hydrotreating and reforming technologies, as well as relevant catalyst development and commercialization capabilities. The company takes the leading position in China in terms of refining technologies. Some of its technologies come up to international advanced level.

Product Quality

In 2007, the Company has maintained the quality of all the ex-work refining products at a 100% on-spec rate. All of its products have qualified the spot check held by technology supervision departments of the State, local governments as well as the Company its own.

Production & Operation

In 2007, according to the widening price spread among crude grades in the international market, the Company optimized crude procurement and transportation and increased processing volume of sour and heavy crude to reduce procurement cost. Meanwhile, through improving operation reliability and optimizing production plan, the Company fully leveraged production capacity and hit historic high in both crude runs and the output of refined products and chemical light feedstock. Throughout the year, the Company processed 155.58 million tonnes of crude, up by 6.3% year on year. The Company was also active in adjusting product mix and increasing the production of high value-added products to meet market demands. Meanwhile, the Company strengthened market analysis and marketing management to further improve the profitability of self-sold refined products. Intensified efforts have been made in technical revamping of refining facilities and in improving product quality. In addition, the Company continued to improve its major technical and economic indicators for refining business through reinforced management as well as scientific and technological advancement. Refining yield was increased by 0.48 percentage points on yearly basis.

Summary of Operations of the Refining Segment:

Notes:
Crude oil processing volume is converted at 1 tonne = 7.35 barrels.

The above date do not include the production of Zhanjiang Dongxing Petrochemical Company Limited and other four refineries that were acquired by the Company

In 2007, the total operating loss of the refining segment was 10.5 billion yuan, decreased by 15.3 billion yuan over the previous year.

Oil Products

Sinopec Corp. is the largest oil products producer and supplier in China. Its major oil products include gasoline, kerosene, diesel, lube oil, chemical light feedstock, fuel oil, solvent oil, petroleum wax, asphalt, petroleum coke, sulfur, LPG, propylene, polypropylene and benzene products for refining. In 2007, the output of gasoline, kerosene and diesel reached 94.09 million tonnes, a year-on-year increase of 6.7%. The Company also produced 23.47 million tonnes of chemical light feedstock, 1.25 million tonnes of lube oil, 7.05 million tonnes of LPG, 0.46 million tonnes of petroleum wax, 2.53 million tonnes of asphalt, 8.42 million tonnes of petroleum coke, 5.94 million tonnes of commodity heavy oil and 0.59 million tonnes of solvent oil.

The category and usage of major products are as follows:

Gasoline includes motor vehicle gasoline, motor vehicle ethanol gasoline, Beijing & Guangzhou local-spec gasoline and gasoline for export. Motor vehicle gasoline grades include RON90, RON93, RON95, RON97 and RON98. While meeting domestic demand, the Company also exports some of its gasoline products to countries and regions in Southeast Asia as dedicated gasoline engine fuels.

Diesel, including light diesel, urban automobile diesel, Beijing & Guangzhou local-spec diesel, diesel for military use and diesel for export, varies in such grades as No.10, No.5, No.0, No.-10, No.-20 and No.-35. Diesel products are used in many areas such as urban diesel automobiles, agricultural automobiles, railway transportation, waterway transportation, fishing, electric power, agricultural machinery, etc.

3# jet fuel oil complies with the national specification requirements for 3# jet fuel, which is formulated according to US JetA-1, JP-8, UK DERD2494 and IATA's kerosene-type jet turbo fuel quality specification. Aside from meeting the domestic needs, 3# jet fuel oil is also exported to Hong Kong and other regions. Six branches/subsidiaries of Sinopec Corp., namely Sinopec Zhenhai Refining & Chemical Co., Ltd., Sinopec Maoming Company, Sinopec Guangzhou Company, Sinopec Gaoqiao Company, Sinopec Shanghai Petrochemical Co., Ltd. and Sinopec Hainan Petrochemical Co., Ltd., all have proved themselves qualified in the annual quality guarantee inspection held by Hong Kong International Airport.

Lube products, categorized by usage into automotive lube oil, industrial lube oil, synthetic lubricant grease and metal working fluids (MWF), are widely applied to aviation, spaceflight, nuclear industry, electronics, military weapons, shipping, automobile, mechanical processing, metallurgical, refining, chemical, and instrumentation areas, etc. The Company's synthetic lubricant grease takes a leading position in the world. The specialty grease products have been successfully applied to China's Shenzhou-series spaceships and contributed to the successful launch of Shenzhou V and Shenzhou VI manned spaceships. The product was recognized by China Aerospace Science and Technology Corporation as the reliable product with stable performance.  As the dedicated oil for China's Antarctic research vessel Snow Dragon, Sinopec Great Wall lube oil has undergone the extremely cold and hot weather and contributed to the success of China's Antarctic scientific research. The Company's various engine oil, hydraulic oil and gear oil were granted certificates from many international companies and rating institutions. Sinopec Great Wall lube oil has become the dedicated lube oil for Beijing 2008 Olympic Games. The Company has established good cooperative relationship with many domestic automobile and motorcycle manufacturers, who use Sinopec Great Wall lube oil as factory fill oil or service fill oil.

Asphalt products include heavy-traffic road asphalt (Class A and Class B, as newly regulated by the Ministry of Communications), modified asphalt, road petroleum asphalt, emulsion asphalt, asphalt used as a protecting coating for piping, asphalt for electric wire, water-proof asphalt, rubber asphalt, asphalt for painting, and insulated asphalt. The past few years witnessed a significant growth of the output of the Company's heavy-traffic road asphalt and modified asphalt which have been widely applied to motorways, urban public roads, airport runways, racing tracks and bridge pavements. After it was successfully applied at the racetrack in Shanghai International Circuit in 2004, Sinopec Donghai modified asphalt was chosen for the road pavement of Donghai Bridge, Shanghai Hongqiao Airport, Beijing Capital Airport Motorway, Zhengzhou Airport Motorway and other national key road construction projects.

Oil Products Sales

Principal Market

The principal market of Sinopec Corp. covers 20 provinces, autonomous regions, municipalities and special administrative regions (SARs) in the northern, eastern, central and southern parts of China including Hong Kong SAR. In addition, the Company's marketing network extends further to 11 provinces, autonomous regions and municipalities in the northeastern and northwestern parts of China as well as Chuanyu (Sichuan-Chongqing) region, which have become important components to Sinopec oil products sales segment. Besides, Sinopec Corp. has been operating a number of retail stations in Macao SAR.

Marketing Networks

Oil products sales business consist of 5 parts: The 1st part is Sinopec Oil Products Sales Company, a wholly owned subsidiary of Sinopec Corp., and its 4 major regional branch companies in the principal market of Sinopec. This part is responsible for the overall balancing of oil product resources, coordination of product allocation and transportation, and the supply to subsidiaries and special customers. The 2nd part is a marketing network consisting of 20 provincial oil companies, including Sinopec (Hong Kong) Limited, which are directly under Sinopec Oil Products Sales Company and their 191 regional subsidiaries. The 3rd part is the 37 branches of Sinopec Oil Products Sales Company in the northeastern and northwestern parts of China as well as in Chuanyu region. The 4th part is the retail network in Macao SAR. The 5th part is a net work comprising joint ventures established with other oil products sales companies and franchised stations throughout China.

Sinopec Corp.'s sales companies have access to well-developed oil products storage and transportation facilities, most of which are owned by Sinopec. The Company has its wholesale centers linked to its refineries through railways, waterways as well as oil products pipelines in some circumstances. The Company also owns a number of dedicated railway lines, crude terminals, oil barges and railway tankers. Sinopec Corp. owns 428 oil depots with a total storage volume of 12.58 million cubic meters, and 1,443 railway tankers with a total capacity of 77150tonnes.
The Company owns 29,062 retail stations, among which 657 sites are under franchise agreement.

Marketing Portfolio

Oil products (mainly gasoline, diesel, lamp kerosene and jet fuel) sales business consists of 4 parts. Firstly, the Company supplies oil products to customers through its retail network which includes retail sites, oil products stores, countryside and water front sites. This network serves as the principal channel for oil products sales, which accounts for 64.2% of the Company's total sales volume. Secondly, oil products are distributed directly to end customers (non service stations), accounting for 16.9% of the total sales volume. Thirdly, the Company directly sells oil products to key accounts, which represents 7.9% of its total sales volume. Fourthly, oil products are sold through wholesale centers (oil depots) to local marketers and independent retailers, representing 11% of the total.

Market Share

In 2007, the total domestic sales volume of refined oil products reached 119.39 million tonnes, representing an increase of 6.9% over the previous year. The retail volume was increased by 6.2%. The efficiency of retail stations kept growing while the annual throughput per station reached 2,697 tonnes, up 4.5% year on year. The retail and direct sales volume of oil products accounted for 81.1% of the company's total domestic sales volume.

Summary of operations of sales and distribution business

In 2007, the EBIT from oil sales reached RMB 35.7 billion, increased by 18.2% over the previous year.