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China to boost oil imports by privatizing refineries

Editor: Li Kun 丨CCTV.com

07-27-2015 17:31 BJT

By Tom McGregor, freelancer based in Beijing

China is the world’s largest importer of oil & gas and continues to experience rising energy demand due to a nationwide urbanization drive that has raised living standards for the entire country. Accordingly, China’s top 3 state-owned oil companies – Sinopec, CNOOC (China National Offshore Oil Corp.) and PetroChina (CNPC) – are looking to upgrade and increase their oil capacities by working with private refineries, commonly known as teapots.

Last Thursday, China’s Ministry of Commerce announced that non-State-owned refineries can purchase oil imports directly. Currently, Chinese oil refineries are heavily-monopolized. Hence, Beijing officials are pushing ahead to privatize the domestic oil market.

Yet, private refineries must meet strict environmental and efficiency standards to receive licenses, while guaranteeing annual capacity of over 2 million tons of crude oil with no less than 300,000 tons of storage capacity along with access to terminals that can handle 500,000 tons b/d (barrels per day)

Teapots pour into action

The Platts energy newswire reports that China’s largest teapot refiner, Dongming Petrochemical has received its first cargo of Omar crude, 270,000mt (metric tons) earlier this month, which was delivered at Rizhao Port on the East Coast of Shandong Province.

The cargo was imported by ChinaOil, a trading firm subsidiary of PetroChina. Another shipment of Omar crude is scheduled to be received in China in August. According to official statistics, China accounts for 90 percent of Omar’s crude exports, including 912,015b/d last month.

Last April, ChinaOil had purchased 49 cargoes of June-loading Omar crude, each holding 500,000 barrels that equals 816,000b/d.

Shandong’s Rizhao Port welcomes private refineries

A number of teapot refiners have already set up shop near Rizhao Port. They hope to generate more substantial revenues from purchases of oil imports. The companies with licenses granted by the Ministry of Commerce are the Shandong Dongming Petrochemical Co., Sinochem Hongrun Petrochemical Co., Panjin North Asphalt Co., Shandong Lijin Petrochemical Co. and Kenti Petrochemical Co.

They are consigned to refine a combined total of 25.8 MMtpy (million metric tons per year) or (518,00bpd) of imported oil each year.

“This would be the first time non-State refineries are potentially being granted licenses,” Liu Aiying, president of Shandong Oil Refinery Association, which represents provincial teapot refineries, told the HydroCarbonProcessing news Website.

Meanwhile, Ivan Spakowski, a Hong Kong-based oil analyst at Citigroup, contends that such licenses can add liquidity to China’s planned futures markets. “Allowing more companies to have the right to import will create more buyers for the physical delivery mechanism in the futures contract to be started in Shanghai,” he said.

Chinese refiners meet the ‘Prince of Kankakala’

Private China-based oil refineries are not just operating in Shandong, but are exploring opportunities abroad, particularly in under-developed markets where vast deposits of fossil fuels can be found. Uganda stands as a primary example.

The African nation holds plenty of crude oil underground, but must rely on importing oil for domestic energy consumption, since its sole operating refinery has been declared “insufficient for the country’s needs, as well as very ineffective with excessive production costs,” according to an IMF (International Monetary Fund) published report.

A consortium of companies from Angola and China have jumped in with plans to construct a $US1.4 billion new oil refinery, which will be dubbed the ‘Prince of Kankala.’ It is scheduled for completion by the end of 2018 in the Angolan city of Ambriz with an expected refining capacity of 400,000b/d.

“The ‘Prince of Kankala’ completely reduces imports of the main products extracted from oil, starting with diesel, whose deficit is very high along with gasoline.” The Angolan private company GPM (International Global Services) President John Feliciano Bifica told the Macau Hub Website.

Tapping into teapots

China’s teapot refiners can enjoy benefits via direct oil imports purchases, since that would reduce shipping costs in the absence of a middle man. Teapots have incentives to upgrade its technology when processing crude as well.

Therefore, Beijing believes that pursuing the path of privatization for the domestic oil market can improve the livelihoods of all Chinese people. Despite such measures moving slowly and cautiously at least it’s a step in the right direction.

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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