China's Ministry of Commerce has issued 107.4 million mt in crude import quotas to 36 qualified independent and non-major state-owned refineries in the first batch for 2022, falling 9.4% from the same batch in 2021, refining sources told S&P Global Platts Dec. 30.
This is the first year-on-year reduction in the first batch crude quota allocation and comes amid the government’s stricter supervision of refineries operations, weighting on China’s crude imports in the first half of 2022.
In comparison, MOFCOM allocated a total of 118.52 million mt in quotas to 43 qualified refineries in the first batch for 2021.
In China, refineries built and operated by state-owned companies — CNOOC, PetroChina, Sinochem and Sinopec — do not need quotas to import crude. All other refineries, including independents and those owned and operated by state-owned companies such as ChemChina and Norinco, require quotas.
Three of the refineries that are absent in the first batch of allocation for 2022 compared to 2021 have been shut in order to transfer their quota to the under-construction integrated 20 million mt/year Yulong Petrochemical in Shandong province.
The absent refineries are the 2.2 million mt/year Fuyu Chemical, 3.5 million mt/year Hengyuan Petrochemical, and 2.3 million mt/year Zhonghai Fine, which had been allowed to crack a total 7 million mt/year of imported crude oil.
This would mean a reduction of 7 million mt/year in crude demand until Yulong Petrochemical is ready to import crude oil for its commissioning around 2023.
Alternatives
Five refineries in which faults were reportedly discovered during government investigations in 2021 also failed to win crude import quotas in the first batch.
They are Beifang Asphalt, Haiyou Petrochemical, Qingyuan Petrochemical, Qingyishan Petrochemical and Wonfull Petrochemical, with a combined crude import quota ceiling of 21.4 million mt/year.
These refineries have to seek other feedstocks for the coming months as they are not allowed to crack crude oil imported independently without quota.
Buying imported crude barrels in the domestic market and importing fuel oil and bitumen blends would be their options. “But their feedstock costs are set to be higher than their peers, hurting their competitiveness,” a Singapore-based analyst said.
Both fuel oil and bitumen blends attract Yuan 1,218/mt ($191.21/mt) in consumption tax, while crude is consumption tax-free.
MOFCOM has set the fuel oil import limit at 16.2 million mt for 2022, unchanged from 2021, S&P Global Platts reported earlier.
“We will continue to apply for crude import quotas,” a source with one of the five refineries said Dec. 30.
Separately, Sinopec is in talks to acquire Beifang Asphalt in the second half of 2022, which may allow the independent refinery to continue to crack crude oil imported via the state-owned oil giant.
Tight supervision
At the same time, “the five refineries’ absence in the first batch allocation suggests that Beijing maintains strict supervision of the sector, which will generally soften buying interest as the quota holders will be cautious in [their] operation and follow rules,” a Beijing-based analyst said.
Chinese authoritieshave launched a series of investigations on refineries’ quota usage, tax payment, operation and emission controls since April, which have dampened crude imports by the independent sector.
Zhejiang Petroleum & Chemical received 20 million mt in the first batch of quotas, 43% more than in 2021 as the integrated plant has doubled its capacity to 40 million mt/year.
Shenghong Petrochemical also won 7.95 million mt in quota in the batch.
The mega refinery received permissions in early September to crack up to 2 million mt of imported crude oil in 2021, 15.89 million mt in 2022 and 16 million mt in 2023, Platts reported earlier.
As a result, all the qualified refineries obtained 51% of their annual ceiling quotas on average, lower than the average of 61% they got in the first batch for 2020.
The ceiling quota is set by National Development & Reform Commission based on the physical conditions that a refinery meets in quota applications.
Besides the 36 refineries, five state-owned, private trading companies and Fujian Refining & Petrochemical have received a total quota of 1.63 million mt. Crude imported by these trading companies will be mostly sold to CNOOC, PetroChina, Sinochem and Sinopec.
Combined quotas allocated to the refineries and trading companies amounted to 109.03 million mt, down 11% from the first batch of 2021.
Source: Platts
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