May 18 (Bloomberg) -- China, the world’s second-biggest energy user, will increase its annual oil refining volume by 18 percent by 2011, boost fuel stockpiles and encourage petrochemical companies to merge as long-term demand rises.

The nation may process 405 million metric tons of crude oil a year by 2011, or 8.2 million barrels a day, the State Council said today, outlining a three-year industry stimulus plan. China processed 342 million tons of crude in 2008. The government will offer loans to companies facing “financial difficulties” and simplify the approval process for overseas projects, it said.

The measures followed the government’s 4 trillion-yuan ($586 billion) spending to boost the economy announced in November, and complement policies including preferential lending rates for oil investments overseas introduced in February. China’s economy grew at the weakest pace since at least 1999 in the first quarter, cutting demand for fuels and petrochemicals.

“These measures are to prepare China for when the slowdown is over and demand for oil products starts to pick up again,” Simon Wong, an energy analyst at Fitch’s Ratings, said by telephone from Singapore. “There’s no doubt that demand will increase for oil products and China is looking to increase exploration and refining in the long term.”

China will expand two to three large refineries in the near future and phase out “small” processing plants, the State Council, or Cabinet, said today. The government plans to have about 20 refining bases each with a capacity of at least 10 million tons a year, the Council said. Three or four refineries will have an annual capacity of 20 million tons.

Oil Exploration

China will boost domestic oil exploration and increase its stockpiles of oil products, the Council said. Domestic oil stockpiles should meet 90 to 100 days of demand, Zhang Guobao, the head of the National Energy Administration, said on April 14.

China will also consider refining crude oil from neighboring Myanmar, according to today’s statement. The countries have signed agreements to develop cross-border oil and gas pipelines, the official Xinhua news agency said on March 27.

The world’s third-biggest economy uses about 8 million barrels of oil a day, with imports accounting for about half of it. The International Energy Agency forecasts China’s consumption may increase to 13 million barrels a day by 2030 as the economy expands.

China plans to produce annually 247.5 million tons of oil products by 2011 and 15.5 million tons of ethylene, used in the making of plastics and synthetic fibers, the Council said.

To contact the reporter on this story: Eugene Tang in Beijing at eugenetang@bloomberg.net; John Duce in Hong Kong at Jduce1@bloomberg.net

Last Updated: May 18, 2009 05:00 EDT