Tanker Market could gain further traction down the line thanks to China’s teapot refineries, as their total oil imports could reach 57 million tons in 2016
China’s teapot refineries appear to be an emerging “player” in the tanker market, as these small-sized (for the most part) privately owned refineries (typically ranging between 20,000-100,000 b/d with some exceptions), are being increasingly allowed to import crude oil from the international market, as an alternative feedstock to the more expensive domestic grades, including fuel oil. In a recent report, shipbroker Gibson noted that “earlier this year sixteen companies led by China’s largest private refiner Dongming Petrochemical have formed an alliance “China Petroleum Purchase Federation of Independent Refiners” in an attempt to improve their negotiating position with suppliers and ease any credit risk concerns for companies previously unable to deal in international trade. This move comes on the back of two deals last year which failed because the refineries could not obtain letters of credit for crude purchases from traders. Two crude cargoes worth $50 million arrived on China’s east coast but had to be diverted, following concerns about dealing with the “new entrants”. The newly formed pool of refiners aims to get around these sorts of problems and has the potential to purchase up to a fifth of China’s 2016 crude import requirements”.
According to Gibson, “most of the teapots are based in the Shandong Province (north China) and prior to the relaxation of purchasing restrictions, struggled to operate at 30-40 per cent capacity due to poor margins and the inability to import crude. Beijing started granting quotas last July 2015 and by January twelve teapot refiners had been granted permission to import 51.4 million tons of crude. Applications from a further six refiners totaling 24.5 million tons are currently being processed, with a further five applications for unknown quotas currently under examination. Total imports for the teapot refineries this year could reach 57 million tons (equal to a VLCC every other day) if they utilise their full allocation”.
The shipbroker added that “further demand increases in 2017 are expected. Dongming Petrochemical has set up a company in Singapore called Pacific Commerce to pool together sixteen refineries to increase buying power and also consolidate chartering; it is believed that at least one oil major has signed contracts with the new company. Of course larger shipments to these refineries lead to logistical problems particularly as the teapots are spread around the Shandong Province, many with very limited storage capacity. A lack of pipeline facilities to some of the more remote refineries means that a great deal of the crude has to be trucked. Several projects to improve terminal and port handling are currently underway; however the issue how to offload a fully laden VLCC remains a headache. Qingdao and Rizhao are the two main VLCC ports servicing the teapots and the recent surge in imports has created widespread congestion, particularly at Qingdao, with many cargoes scheduled to be delivered last month. The impact of these delays will slow down the appetite for further crude purchases in the short term, however a pipeline from the new port of Yantai is due to come into operation in June which should ease the congestion. China may have stopped buying many commodities, but there is no slowdown in their thirst for crude at least for the moment”, Gibson concluded.
Meanwhile, over the course of the past week, another emerging trend came to light, as Reuters reported that teapot refiner Sinochem Hongrun Petrochemical has sold a cargo of gasoline to an overseas buyer for its first product exports, as China’s independent producers join state firms to export surplus fuel. Hongrun is the second teapot plant to export gasoline. Dongming Petrochemical Corp, the country’s largest teapot plant, was the first with an export cargo early this year. “Armed with quotas that could make up a fifth of total Chinese crude imports this year, the nation’s independent refineries are among the brightest spots in the global crude oil market as they ramped up throughput, at the same time adding to China’s swelling fuel exports”, said Reuters. It added that while the teapots’ robust crude purchases are causing severe tanker delays at Shandong ports as large import terminal and storage capacities lag behind the demand, their fuel exports have been hampered by scant pipeline and berthing facilities.
Nikos Roussanoglou, Hellenic Shipping News Worldwide