China’s Refiners Cautious of Crude Supply Amidst Expanded Capacity

At the end of might, at least five independent refineries in Shandong, China’s northern province, have been ordered to cut operating rates as Beijing aimed to clear blue skies to a regional summit in port city Qingdao. The instructions came as Qingdao prepared to host the Shanghai Cooperation Organization (SCO) summit in June. China typically takes such steps ahead of major political gatherings to ensure they proceed with clear atmosphere and without any accidents that could disrupt events. The cuts range between 30% to 50% of the vegetation’ capacities, removing about 45,000 bpd of processing capacity from the market, according to Reuters calculations. That’s a fraction of the 1.9 million bpd that independent refiners, known as teapots, imported in April. however the measures are the latest setback to teapots as they struggle with shrinking profit margins, new tax rules, tighter regulatory scrutiny and greater competition. Teapots account to a fifth of China’s monthly crude imports, which hit a record 9.6 million bpd in April.

The Platt’s report noted that in China, refineries built and operated by state-owned companies Sinopec, PetroChina, CNOOC and Sinochem don’t need quotas to import crude oil. however all other refineries, including independent ones and those owned and operated by state-owned companies including ChemChina and Norinco, are allocated import quotas to crude oil. China’s independent refiners imported 44.1 MMT in the first five months of 2018, up 4.6% year-on-year, according to a Platts survey.

Elsewhere, China National Petroleum Corp (CNPC) plans to help complete a refinery in Rio de Janeiro that already cost Brazil’s state-controlled oil company Petrobras $14 billion before it was halted amid a widespread graft investigation. CNPC signed a letter of intent adding the Comperj refinery to a partnership signed by the two companies last year. The multi-billion dollar petrochemical and refinery project dates back to 2004 and the original plans were to seven vegetation and greater than 100,000 jobs. It was suspended in 2015 amid the corruption investigation known as Carwash. Petrbroas abandoned the petrochemical unit in 2015 amid a series of write downs, and has been seeking a partner to conclude one of the two planned refineries.