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 33 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 2008, Sinopec Corp.'s total processing capacity has reached 186 million tons, up by 10.7% 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. FCC was 55.71 million tpa, up by 10.4%. Delay coking units capacity was 39.55 million tpa, up by 24.2%. Catalytic reforming units capacity was 18.45 million tpa, up by 23.7%. Hydrocracking units capacity was 23.86 million tpa, up by 6.7%. Hydrofining units for gasoline, kerosene and diesel capacity was 69.01 million ton tpa, up by 17.2%. 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 58.07 million tons since 2000. In 2008, the processing volume of high-sulfur crude was increased by 18.2% 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, Jinling 1 million tpa continuous reforming, Jiujiang 5 million tpa atmospheric and vacuum distillation units, Gaoqiao 8 million tpa revamping project for processing imported sour crude, Qingdao 10 million tpa refining project. Besides, some projects were consecutively started and will be put into operation in the near two years. These projects are 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 and Guangzhou 1 million tpa continuous reforming, Jinan and Cangzhou delay coking units revamping projects, Tahe 3.5 million tpa Heavy Oil Upgrading, Tianjin 12.5 million tpa expansion, Fujian 12 million tpa integrated refining and chemical project, Zhenhai 22 million ton tpa refining auxiliary project, Zhanjiangdongxing refining system auxiliary project, Qilu atmospheric and vacuum distillation units potential safety hazards control and energy-saving revamping project, Changling crude quality upgrading project, Maoming refining structure adjustment and oil quality upgrading project and a series of oil products quality upgrading projects according to the 3rd Stage of National Vehicle Emission Standard. Comprehensive auxiliary capacity of refineries will develop towards perfect. Currently, 9 refineries under Sinopec have a capacity of over 10 million ton tpa, 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 Qingdao Refining Corp., Ltd. has an overall processing capacity of 10 million tpa. It is not only a newly-built high sulfur crude processing base, but also the 1st ten-million-ton refining project approved by the central government. It plays a significant role in optimizing refining layout, enhancing competition capability, and safeguarding market supply;
Sinopec Shanghai Gaoqiao Company has a processing capacity of 11 million tpa. After revamping project of adjusting to refining crude with high sulfur in 2008, it has become another refinery with ability of processing high sulfur crude under Sinopec. It 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. It is one of the important integrated refining and chemical enterprises under Sinopec;
Sinopec Beijing Yanshan Company, with a processing capability of 11 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 2008, 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 2008, 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. Average sulfur content of the procured crude was increased by 0.08 percentage point, average API was decreased 0.34 unit. 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 169 million tons of crude, up by 8.5% 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. Production of high-grade oil was increased by 28.5 percentage point year on year. In addition, the Company continued to reinforce management as well as scientific and technological advancement. Light oil yield was increased by 0.32 percentage point. Refining yield was increased by 0.12 percentage point. Refining energy-consuming was decreased 2.51 units. Processing loss rate was decreased 0.11 percentage point all year round.

Summary of Operations of the Refining Segment:

Note1: Crude oil processing volume is converted at 1 ton = 7.35 barrels.
Note2: 2008 includes the five enterprises in Dongxing, Hangzhou, Yangzhou, Taizhou and Qingjiang, which were acquired from China Petrochemical Corporation at the end of 2007

The total operating loss of the refining segment was RMB 61.5 billion yuan£¬ representing an increase in loss of RMB 51.1 billion over 2007.

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 2008, the output of gasoline, kerosene and diesel reached 105.86 million tons, a year-on-year increase of 2.7%. The Company also produced 22.99 million tons of chemical light feedstock, 1.21 million tons of lube oil, 8.05 million tons of LPG, 0.44 million tons of petroleum wax, 2.75 million tons of asphalt, 10.34 million tons of petroleum coke, 4.88 million tons of commodity heavy oil and 0.51 million tons 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, Shenzhou VI and Shenzhou ¢÷ 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 ex-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. Meanwhile, the Company jointly conducted development of residue-free emulsified asphalt specialized in railway with the Ministry of Railway.

Oil Products Sales

Principal Market

The principal market of Sinopec 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 marketing segment.

Marketing Networks

Oil products marketing network consists of 4 parts: First is Sinopec Oil Products Sales Company, a wholly owned subsidiary of Sinopec, 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. Second 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. Third is the 37 branches of Sinopec Oil Products Sales Company in the northeastern and northwestern parts of China as well as in Chuanyu region. Fourth is a net work comprising joint ventures established with other oil products sales companies and franchised stations throughout China.

Sinopec’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 oil products pipelines, railways and waterways. The Company also owns a number of dedicated railway lines, crude terminals, oil barges and railway tankers.

The Company owns 29,279 retail stations, among which 632 sites are under franchise agreement.

Marketing Portfolio

Oil products (mainly gasoline, diesel, lamp kerosene and jet fuel) sales business consists of 4 parts. First, 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. Second, oil products are distributed directly to end customers (non service stations). Third, the Company directly sells oil products to key accounts. Fourth, oil products are sold through wholesale centers (oil depots) to local marketers and independent retailers.

Market Share

In 2008, the sales volume of refined oil products reached 122.98 million tons, up by 3.0%.

Summary of operations of sales and distribution business

In 2008, the operating profit of this segment was RMB 38.2 billion, representing an increase of 6.9% over 2007. This was mainly due to the increase of domestic demand on refined oil products as well as improvement in the sales structure of the company.