China’s Yulong Refinery Surges with Russian Oil Amid Sanctions

Shandong Yulong Petrochemical, China’s latest refinery, has emerged as a significant player in the oil market, capitalizing on the unintended consequences of Western sanctions against Russia. Within just a year of its establishment, this facility in Shandong province has pivoted to rely heavily on Russian crude, securing approximately 350,000 b/d for November delivery, effectively running on discounted oil after losing access to Western supplies.

The refinery’s rapid ascent underscores a complex reality: sanctions intended to isolate Moscow have inadvertently fostered a new trade relationship between sanctioned Russian oil producers and Chinese refiners. Following the tightening of restrictions on Russian energy exports in October 2025, the United Kingdom designated Shandong Yulong on October 15 as an entity “supporting the Russian energy sector,” while the European Union formally included it in sanctions on October 23.

Instead of severing ties, these measures have connected a newly operational Chinese refinery seeking stable crude supplies with Russian producers who have been shut out of Western markets. Prior to November, Yulong sourced its crude from a diverse range including Canada, the Middle East, and Angola. However, that sourcing strategy has shifted dramatically; for November, Yulong has committed to securing nearly all of its feedstock from Russian crude, a marked increase from just 100,000 b/d earlier in the year.

Currently operating at around 90% of its 400,000 b/d capacity, Yulong has transitioned from a mixed-supply model to one almost entirely dependent on Russian oil. This shift is not merely a trend but a necessity driven by the unavailability of alternative supplies. Several Canadian shipments originally intended for December have been rendered inapplicable due to sanctions, forcing those barrels to be resold elsewhere. As a consequence, Russian crude has become both the cheapest and effectively only viable option for Yulong.

The operational achievements of the refinery also highlight its rapid development. In September and October, throughput reached approximately 90% of its design capacity, contributing to record-high crude runs across China. Yulong’s new 12 mtpa naphtha cracker achieved on-specification ethylene output in mid-September, with additional units producing other petrochemical products coming online throughout the year.

Despite the oversupply conditions in the regional market, Yulong appears to be in a strong position. The refinery benefits from sourcing discounted Russian oil, which has significantly lowered its operating costs and offset declines in product prices. Interestingly, as Yulong’s imports have shifted almost entirely to Russian crude, its cost base has decreased, contradicting the expected pressures sanctions were designed to impose.

This reconfiguration of crude sourcing will necessitate revisions to Yulong’s feedstock strategy to sustain product yield. Previously, the refinery relied on a blend of heavy and sour Canadian crude and lighter grades such as Russia’s Sokol and ESPO. With Western supplies now restricted, questions remain about Yulong’s ability to secure the necessary heavy crude to maintain output levels. Some analysts express skepticism, while others suggest that Russia’s Urals blend could serve as an adequate substitute without major adjustments.

For Russian exporters, Yulong offers a reliable outlet, effectively tripling their sales to the facility during a time when many Indian refiners are reconsidering their import strategies. Gazprom Neft, for instance, could redirect some of its Arctic ARCO crude to Yulong, ensuring a steady supply of heavy feedstock essential for high-value production.

In this evolving energy landscape, Shandong Yulong Petrochemical stands as a testament to how sanctions can inadvertently create new supply chains. As this newly built Chinese refinery operates almost exclusively on Russian oil, it exemplifies the intricate interdependencies formed in the shadows of a global oil market reshaped by geopolitical tensions.