With the new year fast approaching like a dragon emerging out of the depths of a cave, the Asian energy market is facing an uncertain future in 2026. With market analysts like Fitch Ratings and others noting that tighter refining margins in 2026 will become all too real for the litany of Asian refineries, especially in China. Traditional oil production is set to continue to decline in China amid decreased demand, while the oil-to-chemical sector is set to surge in the new year, marking a shift in China’s energy market.
China’s energy market is as vast as the nation’s energy ambitions
China’s energy sector is vast, with operations across both the renewable energy market as well as the more conventional energy sector. However, the government has revealed the “Workplan for Stable Growth in the Petrochemical and Chemical Industry (2025-2026)” as the nation sees demand for conventional energy products declining in recent months.
The EV sector has been the main driver in the reduction of demand across China for diesel and other petrochemicals. Fitch Ratings, a leading market analysis organization, has noted that the Chinese government’s “anti-involution” policy is aimed at reducing unhealthy competition, while tightening up refinery restrictions across the nation.
Market analysts note the shifting narrative emerging out of the Chinese energy market
Fitch has noted that the Chinese government’s policies will provide some level of support to refineries amid a shifting market that has called for increased petrochemical production across the nation’s vast amount of refineries.
“We expect margins likely to stabilise amid tighter restrictions on new capacity additions and some capacity exits. However, we believe margin pressure will persist downstream for chemical producers, where overcapacity challenges are set to be more resistant. – Fitch Ratings
China is laying out stricter refining rules for the new year, some of which have already produced results
The government’s new work plan outlines the importance of reshaping China’s energy market. The plan lays out stricter capacity rules for the refining sector, which comes off the back of plans to phase out refineries with a capacity of less than 2 million tonnes annually. Under this new plan, new refinery additions can not exceed the capacity being retired, meaning that China’s refining capacity will decline over the next few years.
“We regard this ceiling as a hard cap, given that the authorities have forced capacity reductions when it was approached in the past, most recently in 2022 when several small-scale “teapot” refiners were forced to exit the industry.” – Fitch Ratings
China’s surge of electric vehicles has impacted the nation’s refining capacity as more people turn to EVs
China has over 20 EV companies at the moment, with the sector planning more growth in the years to come as the average Chinese buyer contemplates a future zooming about in an electric vehicle. The increase has led the refining sector to shift towards new additions that require a more pragmatic approach. The move comes as China has plans to build a massive green hydrogen and ammonia facility soon.
The global upstream sector is set for new capacity additions in 2026 and beyond
China’s refining margins have taken a hit this year, but at least the government has plans to address the issue. With the rest of the world planning new additions to capacity in the new year, the upstream energy market is set for a great start to 2026. China’s unwavering commitment to adapt with the times has led the nation to become a global leader in the energy industry, although recent developments have tightened refining margins. Regardless, the new work plan from the government outlines a clear path forward in the new year.
