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Chinese “Teapot” Refiners Enter Into The Global Oil Trade | Hellenic Shipping News Worldwide

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 Chinese crude oil imports have historically been dominated by a handful of state-owned companies. However, since mid-2015 Beijing has started to liberalize China’s oil market, and is gradually allowing more independent refiners to process imported crude, and import crude oil directly. One year on, China’s “teapot” refiners are helping to boost China’s crude import demand and their influence is expanding.
Thirst For Crude2016-07-28_upload_9062656_CHIM_2016_07China’s independent, typically small, “teapot” refiners account for an estimated 20-30% of Chinese refinery capacity, with Shandong province home to around 70% of total “teapot” refinery capacity. Historically, “teapot” refiners have had to rely on crude supply agreements with state oil companies or process fuel oil, with refinery utilization reportedly limited to around 30-40%, compared to over 80% at state-owned refineries. However, to encourage competition in China’s oil market, Beijing has started to permit some “teapot” refiners to use imported crude oil.

Opening The Tap

By the end of 2015, 13 local “teapot” refiners had been granted permission to process a combined 55mtpa of imported crude oil, either through importing cargoes themselves or via purchase from state-owned companies. 11 of these refineries with a capacity of 42mtpa are located in Shandong. This has led to a sharp rise in crude import demand in the province, with seaborne imports into Shandong growing 72% y-o-y to 48mt in the first five months of 2016, accounting for almost 90% of total Chinese seaborne crude imports. Utilization at Shandong’s “teapot” refineries has reportedly risen to more than 50%, boosting total refinery throughput in the province by 15% in January-May 2016, with more than half of Shandong’s refinery capacity estimated to be accounted for by “teapot” refiners.

In 1H 2016, a further five refiners across China were given permission to process imported crude, bringing the total volume allocated to “teapot” refiners to 72.5mtpa, equivalent to almost a quarter of Chinese seaborne crude imports in 2015. A further 16.6mtpa of quotas are currently pending approval, of which 9.9mtpa are for refineries in Shandong. If all quotas for Shandong refiners are granted, 21 “teapot” refiners in the province could process up to 66mtpa of imported crude, equivalent to more than 50% of Shandong’s total seaborne crude imports in 2015.

Eastern Imports

Increased imports by “teapot” refiners are also driving shifts in China’s crude trade patterns. The “teapot” refiners appear to favor Russian oil, perhaps owing to the availability of small spot cargoes and attractive prices. In January-May, total Chinese imports from Russia rose 99% y-o-y to 12.5mt, whilst almost 25% of growth in imports into Shandong was accounted for by Russian crude cargoes. However, Shandong’s imports from other regions have also risen firmly so far this year.

So, recent regulatory changes in China have had an impact on oil market dynamics and crude trade patterns. “Teapot” refiners, especially in Shandong, have been key in bolstering overall Chinese crude imports this year, and seem set to become increasingly important to trends in Chinese oil trade.
Source: Clarkson Research Services Limited

Source: Chinese “Teapot” Refiners Enter Into The Global Oil Trade | Hellenic Shipping News Worldwide