DOMESTIC private refineries, accounting for a fifth of the nation’s oil processing capacity, are upgrading units to produce cleaner-burning fuels to meet government emissions standards.

China’s increasingly strict rules on the environment posed a threat to independent refiners, said He Hengkai, director of the oil department at energy consultant Oilchem Net.

The plants were finding ways to boost profits or risked being acquired by State refiners, He said in Shandong Province, where half the country’s so-called teapot units are based.

The government is tightening emissions controls and promoting the use of cleaner-burning fuels to meet a target of cutting the output of major pollutants by 10 percent in 2010.

The government raised the consumption tax on imported fuel oil, a feedstock for teapot refiners that’s more polluting than gas, by more than fourfold March 5, squeezing processing margins.

“Adding secondary units will be a good way to help boost refining margins,’’ Bizer Tang, chief analyst at fuel distributor Guangzhou Twinace Petroleum & Chemical Co., said yesterday.

Supplies from teapot refineries were still a necessary supplement to the domestic market, said Tang.

Shandong Hengyuan Petrochemical Co. was building a so-called hydrotreater to produce higher-grade gasoline and diesel, said Ma Yandong, a sales manager at the 1-million-metric-ton-a-year refinery. The 800,000-ton-a-year hydrotreater would become operational next year, said Ma.

“We want to produce higher quality fuel to strengthen the market share of high-end users,’’ he said. The company added an 800,000-ton-a-year catalytic cracker last April.

Shandong Hengyuan is among private plants that are accelerating upgrades to boost output of more-expensive fuel, a trend that already prevails in Asia.

China’s teapot plants are typically units that have an annual processing capacity of less than 3 million tons each. The plants, 70 percent of which are in the provinces of Shandong and Shaanxi, are less efficient compared with a State-owned refinery that may process 20 million tons a year of crude oil. (SD-Agencies)