Shandong refiners confined by state quotas

08 October 2018, Week 39, Issue 713

Independent refiners in China’s eastern Shandong Province will struggle to wring oil product export quotas out of Beijing until they step up efforts to consolidate and build more infrastructure, the general manager of a group of teapots said last week.

Plants focusing on petrochemical products could, however, be given favourable treatment.

Any independent refiner seeking export quotas will need to demonstrate capacity of at least 80 million tpy, said Zhang Liucheng from Shandong Petrochemical & Energy Group (PEGC). Reaching this point will require teapots to merge and consolidate capacity or to build new facilities – a process that could take around five years – he said.

Among China’s independent refiners, only Hongrun Petrochemical currently has a capacity of more than 10 million tpy.

“Scale is the key element for successful applications and it’s the same for all independent refiners,” Zhang said.

PEGC was founded earlier this year by Dongming Petrochemical to allow independent refiners with crude import quotas to consolidate capacity and optimise everything from their feedstock purchases and products marketing.

Eight independent refiners in Shandong with a combined capacity of 26 million tpy have so far joined the group.

Beijing’s wariness of granting export quotas to small plants is based on experience. While it bestowed export quotas amounting to 1.675 million tpy on a few teapots in 2016, they only managed to use 900,000 tpy of the allocation. Beijing did not issue independents with any additional quotas in 2017 or 2018.

A focus on petrochemical products rather than simply oil products could help some teapots to change Beijing’s mind about their suitability for export quotas.

For example, two greenfield independent integrated refiners – Hengli Petrochemical in Liaoning Province and Zhejiang Petrochemical in Zhejiang Province – look well positioned to win quotas when they enter commercial operations in 2019. Each firm will have a capacity of 20 million tpy and will specialise in petrochemical products.

“The two refineries are more likely to win oil product export quotas, as oil products will be their side products, while they would focus more on value-added petrochemical products,” one independent refiner said last week.

Teapot refiners across China are rushing to get into the petrochemical products business – a sector that Beijing has opened up even to foreign firms, suggesting it is a priority for the government. BASF and ExxonMobil, for example, recently unveiled plans to invest in integrated petrochemical projects in Guangdong Province.

PEGC too plans to build three to four integrated refining and petrochemical plants, each with a capacity of more than 20 million tpy. “These new refineries will maximise yields for aromatics and olefins to 40%, while lowering the yield for oil products to 50%,” Zhang said.

Oil products currently account for around 70% of production by China’s independent refineries.

The breakneck speed with which teapots are burning through crude import quotas could also encourage Beijing to take a second look at allocating export quotas to some, if only to avoid the build-up of another domestic oil product glut.

Independent refiners used up 60% of their crude import quotas for the whole of 2018 in the first nine months of this year. The government had granted combined import quotas of 130.93 million tonnes for 2018 to 40 teapots.

For the moment, however, Beijing remains firmly focused on state-owned refiners as its vehicle for getting refined oil products out to international markets. 

A faster than expected expansion in output by state-run refiners has seen them use up their refined fuel export quotas more quickly than anticipated. As a result, Beijing is reportedly mulling awarding them an additional 3-4 million tonnes of quota for refined fuel exports this year, despite having targeted keeping fuel export quotas at 43 million tonnes for 2018.

Sinopec, PetroChina and Sinochem were on track last month to have used 81% of their total annual export quotas by the end of September and were warning Beijing that without additional allowances they could be forced to reduce throughput in the fourth quarter.

Edited by

Ian Simm


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