SINGAPORE- China's coastal province of Shandong is expected to shutter refineries with daily capacity of more than half a million barrels by the end of 2022 to make way for a new petrochemical complex, a provincial official and industry sources said.

The clean-up of 10 plants, accounting for about 3% of refining capacity in the world's largest importer of crude, is part of efforts to streamline a bloated oil refining sector that brought fuel shortages in some regions recently. 

Their closure, aimed at scrapping excess fuel output and curbing carbon emissions, will also dampen demand by removing 13 million tonnes of annual crude oil import quotas, or 260,000 bpd, from China's quota list, sources estimated.

"This is a positive development to help Shandong's shift to more advanced manufacturing capacity that also serves the national carbon goal," said Zhou Mi, an analyst with consultancy JLC who is based in the eastern region.

"However, it's going to have some impact on China's crude oil imports as the government lowers quotas for independent refiners."

Between June and September, three of the plants - Hengyuan Petrochemical, Fuyu Petrochemical and Lianmeng Petrochemical - closed crude units with a combined capacity of nearly 160,000 bpd, the sources said.

The closures bring Shandong's permanent plant shutdowns to nearly 20 million tpy (400,000 bpd) since 2020, when it began to consolidate its fragmented refining sector, along with a plan to build a $20-billion petrochemical complex in its city of Yantai.

The province, home to about 60 small refiners sometimes known as teapots, aims to mothball crude units with capacity of another 150,000 bpd by the end of 2022, taking total shutdowns to about 560,000 bpd, the sources said.

All the sources sought anonymity because they were not authorised to speak to the media.

A Shandong government official confirmed the details of the shutdowns as well as the timeframe, but declined further comment.

China's crude oil imports fell nearly 7% in the first nine months of this year, as Beijing reins in illicit quota trading and cuts import permits to teapots. 

In recent years it has favoured building huge integrated refinery and chemical complexes, such as Zhejiang Petrochemical Corp in its east, with a focus on growing high value-added chemical business, while capping crude processing capacity.

Shandong started building the $20-billion Yulong complex in the port city of Yantai a year ago, media have said.

The project, with investment led by private aluminium smelter Shandong Nanshan Group, consists of a 400,000-bpd oil refinery and a 3-million-tonne-per-year ethylene plant, Reuters has reported.

The firms that dismantle plants were expected to receive cash compensation from the Yulong project funds which they can invest in new projects or use to relocate workers, industry sources have said.

"You'll see many of them shift to new materials manufacturing or even greener projects such as electric vehicle related chemicals production," said one senior source close to some of the plants.

(Additional reporting by Muyu Xu in Beijing; Editing by Clarence Fernandez) ((aizhu.chen@thomsonreuters.com; Reuters Messaging: aizhu.chen.reuters.com@reuters.net))