By Shu Zhang and Muyu Xu
SINGAPORE – China has issued 35.24 million tonnes of crude oil import quotas to non-state refiners in a second batch of allowances for 2021, a 35% drop from the same slot last year, according to a document seen by Reuters and two sources with knowledge of the matter.
The sharp decline comes after a recent crackdown on trading of such quotas as Beijing works to consolidate its bloated refining industry and reduce emissions.
Analysts expect the changes in quotas and newly imposed taxes on bitumen feedstock to reduce independent refiners’ crude imports and their fuel output in the second half of the year although state refiners will ramp up crude imports and processing rates to reap higher domestic margins. Independent firms, known as ‘teapot’ refiners, account for about a fifth of crude imports the world’s largest oil importer.
This “will impact oil imports by teapots but not the overall crude imports or refinery operations as we expect NOCs (national oil companies) to make up for the shortfalls from teapots,” SIA Energy analyst Seng Yick Tee said.
These refiners are likely to draw on commercial inventories in China while processing fuel oil that they had bought earlier, said Liu Yuntao, China analyst at consultancy Energy Aspects.
The impact on refiners’ run rates will become more evident in the fourth quarter as they gradually use up oil in storage, Liu added.
A total of 39 companies, led by two large private refiners -Zhejiang Petrochemical Co (ZPC) and Hengli Petrochemical – will receive quotas issued in the second batch for 2021. ZPC and Hengli will each receive 3 million tonnes.
A few Shandong-based independent refiners, or so-called teapots, which had received crude oil import quotas under the first batch this year, were removed from the second list, the document showed. That included Shandong Wonfull Petrochemical, Shandong Haiyou Petrochemical and Qingyuan Petrochemical.
Several companies affiliated with China’s state-owned oil majors were also not included in the second list, the document showed.
However, China is likely to issue a third batch of crude oil import quotas before the fourth quarter, Energy Aspects’ Liu said, which could also include volumes for new mega refiner Shenghong Petrochemical.
China’s Ministry of Commerce had said in late 2020 that it would raise the non-state crude oil imports allowance for 2021 by 20% from 2020’s total to 243 million tonnes, to meet demand from new mega refineries.
In December, it issued 122.59 million tonnes for the first batch for 2021, the highest ever.
However, ballooning domestic fuel supplies and depressed sector-wide refining profits so far in 2021 encouraged authorities to launch a probe into the use of crude import quotas and levy new taxes on fuels used by refiners.
The second batch of quotas brings China’s total non-state import allowances to 157.83 million tonnes so far this year, compared with 157.71 million tonnes by the same point in 2020.