Shandong Yulong Petrochemical Leverages Russian Oil Amid Sanctions

Shandong Yulong Petrochemical, a newly established refinery in China, has rapidly adapted to the global oil market’s shifting dynamics, primarily benefiting from discounted Russian crude. The facility, located in Shandong province, is operating almost entirely on Russian oil after Western sanctions restricted its access to other supplies. This transformation highlights the unintended consequences of sanctions aimed at isolating Russia, as it now finds itself entwined with Chinese refiners.

Since its launch, the refinery has purchased approximately 350,000 barrels per day (b/d) of Russian crude for November delivery. This represents a significant shift from its earlier sourcing strategy, which included a diverse mix of oil from Canada, the Middle East, Angola, Brazil, and Russia. Following the imposition of sanctions by the UK on October 15, 2025, and the EU on October 23, 2025, aimed at major Russian producers like Rosneft and Lukoil, Yulong’s procurement strategy has evolved dramatically.

The sanctions aimed to disrupt Russia’s energy sector; instead, they have facilitated a new trading relationship between sanctioned entities. With many Indian refiners reconsidering their Urals imports, Yulong has become a reliable outlet for Russian exporters, effectively tripling their sales to the plant. Operating at approximately 90% of its 400,000 b/d capacity, Yulong is now powered almost exclusively by Russian crude.

The switch to Russian oil stems from a combination of necessity and opportunity. Several Canadian shipments initially slated for delivery have been curtailed, as sanctions prevent their discharge in China. Consequently, these barrels are being resold on the secondary market, making Russian crude not only the most cost-effective option for Yulong but, essentially, the only viable alternative. While there is potential for Venezuelan oil to enter the mix, logistical challenges complicate payment processes.

Yulong’s operational efficiency has soared, with throughput levels reaching record highs in September and October. The refinery achieved on-specification ethylene output from its new 12 million tonnes per annum (mtpa) naphtha cracker, marking a significant milestone since its first unit came online in December 2024. This rapid expansion has intensified the pressure on already oversaturated chemical markets throughout Asia.

Typically, such a rapid scaling could threaten profit margins, especially for a newly commissioned plant. However, Yulong’s unique position allows it to turn potential challenges into competitive advantages. The transition to predominantly Russian crude has drastically lowered operating costs, balancing the decline in product prices and ensuring profitability even amid a crowded market.

As Yulong continues to adapt, its crude sourcing strategy will require careful adjustments to maintain optimal product yields. Previously, the refinery relied on a balanced mix of heavy and sour crude from Canada and Iraq, combined with lighter grades from Russia. With the elimination of Canadian and Middle Eastern barrels, analysts express concerns over Yulong’s ability to sustain output levels.

Yet, some experts argue that Russia’s Urals blend could effectively replace the previous crude mix without significant modifications, although this may necessitate a reduction in the purchase of lighter grades like Sokol and ESPO. With the ability of Russian producer Gazprom Neft to redirect its Arctic ARCO crude (24 degrees API) to Yulong, the refinery can secure the heavy feedstock necessary for optimal efficiency.

The evolving dynamics of Yulong’s crude imports serve as a testament to how sanctions can inadvertently create new supply chains. Rather than dismantling existing networks, these measures have fostered a mutually beneficial relationship between Russian and Chinese entities, presenting a unique case within the global oil landscape. As Yulong continues to thrive on discounted Russian oil, it solidifies its position as a pivotal player in an increasingly complex market.