China curbs teapot runs ahead of Qingdao summit

31 May 2018, Week 21, Issue 695

China has reportedly ordered at least five independent refineries in Shandong to cut run rates ahead of the Shanghai Cooperation Organization (SCO) summit to be held the port city of Qingdao on June 9-10.

The cuts range between 30% and 50% of the plants’ capacities, removing about 45,000 bpd of processing capacity, Reuters cited unnamed sources as saying. The move is aimed at reducing urban air pollution ahead of the summit and is a tactic Beijing has used in the run up to other international events.

Dongying-based Haike Group is the largest company forced to cut runs and has reduced production by 30% at its two plants since mid-May, a company official told the newswire. The refinery operator, which has 120,000 bpd of processing capacity, must keep runs low until mid-June.

Binzhou-based Wudi Xinyue Fuel, which has 6,575 bpd of processing capacity, said it had been ordered to cut production by half. Similar stories were repeated by representatives from Rizhao Lanqiao Petrochemical, Qicheng Petrochemical and Yatong Petrochemical.

The measures are a setback for independent refiners, which are also dealing with rising crude prices, new tax rules and greater competition.

Just last week China allowed 11 new private refiners to import oil directly, bringing the number of independent outfits with such licences to 28. The Ministry of Commerce (MOFCOM) published the list on May 23 after it “examined the firms’ applications and found them in accordance with requirements”.

The refineries included: Liaoning Province-based Dalian Jinyuan Petrochemical; Shaanxi Yanchang Petroleum; Shandong Hengyuan Petrochemical; Shandong Zhonghai Special Chemical; Shandong Shengxin Chemical; Shandong Dongfang Hualong Industry and Trade; Shandong Jicheng Petrochemical; Shandong Zibo Xintai Petrochemical; Shandong-based Rizhao Lanqiao Petrochemical, Henan Lifeng Petrochemical, and Hubei Province-based Jinao Science and Technology Chemical.

MOFCOM has not offered new crude import licences to independent refiners since February 2017, when it granted permits to five teapots. While 36 independent refineries can import crude, eight of them must use government-run trading agents to do so.

Until 2015, the government only allowed state refiners to import crude via their own trading houses – Unipec for Sinopec, Chinaoil for PetroChina, Sinochem and Zhuhai Zhenrong for other refineries. But smaller and independent refineries were allowed access to the import market in order to improve the quality of the fuels they produce as well as to encourage competition on the home front.

The import system for independents is managed by a licence and quota system. The quota for non-state crude purchases in 2018 stands at 142 million tonnes (2.84 million bpd), up 55% year on year. Data released by the Chinese General Administration of Customs (GAC) show that the country’s imports climbed by 10.1% year on year in 2017 to 420 million tonnes (8.4 million bpd).

Edited by

Andrew Kemp


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