China could boost tanker rates on increased crude oil imports from “teapot” refineries
in Hellenic Shipping News 22/09/2015
5:03 pm et
China’s small refineries could offer more opportunities for growth in the tanker market, after the recent decision by the Chinese authorities to permit them to import crude oil, as an alternative feedstock to the more expensive domestic crude grades. As per the latest weekly report from shipbroker Gibson, “teapot refineries include the smaller privately owned facilities with capacities typically ranging between 20,000–100,000 b/d, compared with the 200,000+ b/d capacities at Sinopec and CNPC plants”.
The London-based shipbroker noted that “many of these teapot refineries have had difficulty in sourcing sufficient feedstock from domestic producers, so lifting the restriction would allow them to take advantage of lower international oil prices. Also, the teapot refiners prefer to process imported crude rather than discounted fuel oil due to better product yields and margins from crude as opposed to fuel oil. This also accounts why fuel oil imports will continue to slow following these reforms. According to recent Chinese customs data, the nation imported 1.1 million tonnes of fuel oil in July, the lowest volumes in a year, while exports of fuel oil nearly doubled from June”.
Gibson mentioned that “Eastern China’s Shandong Province is the centre of the teapot world, with 80% of these refineries located in this region. The total capacity of the sector in this province is just over 4 million b/d, and the utilization usually averages below 40%. In early 2015, the Chinese National Development and Reform Commission (NDRC), which is the top economic planner of China, set out a policy allowing teapot refiners to process imported crude. A refiner must have a crude distillation capacity of 2 million tonnes per annum (around 40,000 b/d) or above in order to qualify for a crude import quota from the government. According to one Chinese oil trader, so far Chinese teapot refineries (including Dongming -7.5m, Beifang Asphalt – 7m, Sinochem Hongrun – 5.3m, Kenli – 2.52m, Lihuayi – 3.5m and Chemchina – 10m tonnes per annum) have nearly reached their import quota of 40 million tonnes and by end of this year, it is expected this will be increased to 50 million tonnes per annum”.
According to the shipbroker, “there are three Chinese oil majors in an advanced position to trade with those teapot refineries, though, all Chinese oil trading arms want to be suppliers. Regular suppliers in the past have included Petrochina and CNOOC so a connection is already established. Chemchina have purchased several local teapot refineries and will be natural supplier for them. On the oil trading side, Dongming has set a Singapore trading office and have 5 oil traders in place. The impact on the shipping side is thought to be extra crude import requirements to replace fuel oil as a feedstock and potentially a refining utilisation increase”.
It concluded by noting that “assuming that independent refiners utilise the full 700,000 b/d crude import quota, there would be potential for a reasonable increase in crude tanker fixtures with cargoes being sourced from diverse producing regions. Furthermore, with lower fuel oil demand in the Far East, traders may find it increasingly difficult to place the surplus fuel oil in Northern Europe and the US to eastern destinations- impacting upon fuel oil arbitrage to the East”.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “the VLCCs were all poised in the starter’s blocks at the beginning of the week with the fuller first decade of the Basrah programme apparent to all and sundry. There was a feeling that the market would push on from the high ws 40s to go East, and Owners capitalised on the firmer sentiment to finish this week at 280 x ws 34 West and 270 x ws 65 to Singapore. There is a feeling that we might plateau at this level with Suezmaxes now coming into play as a split, but with ullage delays in North China still persisting, the VLCCs are unlikely to soften in the
short term. Suezmaxes, on their own, are likely to only be able to sustain rates with a reasonable amount of tonnage against thin enquiry. However, if the VLCCs start to split, then rates could move from 130 x ws 65 East and 140 x ws 42.5 West. With the Eid holiday upcoming next week, Aframaxes are expecting very little change on the current soft levels being achieved in the Arabian Gulf and next week will offer little change with 80 x ws 85 being on the cards”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
The greatest deception men suffer is from their own opinions.
~ Leonardo da Vinci
AI
