Teapot’ re­finer­ies stir up oil sec­tor

China Daily (Hong Kong) - - BUSINESS - By ZHENG XIN

A price war be­tween China’s State-owned oil ma­jors has cut costs for mo­torists at gaso­line sta­tions in a move to com­bat over­ca­pac­ity and the rise of “teapot” re­finer­ies.

The China Petroleum and Chem­i­cal Corp, or Sinopec, and PetroChina Co Ltd have be­come vic­tims of an over­sup­ply in crude oil and an in­crease in in­de­pen­dent re­finer­ies known at “teapots”.

But an­a­lysts dis­missed claims that the coun­try’s boom­ing bike-shar­ing sec­tor, spear­headed by Mo­bike and Ofo Inc, have played a lead­ing role in fall­ing pump prices.

“Most of the bike-shar­ing cus­tomers do not re­ally drive,” said Li Li, an en­ergy re­search di­rec­tor at ICIS China, a con­sult­ing com­pany which pro­vides en­ergy mar­ket anal­y­sis.

“The es­sen­tial rea­son for the price war is the coun­try’s re­fin­ery over­ca­pac­ity and the rise of teapot re­finer­ies,” Li added.

In a move to prop up crude prices, OPEC, or the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries, have cut pro­duc­tion, but the slack has been taken up by oil­shale op­er­a­tors in the United States.

At around $50-a-bar­rel, crude re­finer­ies across the world, in­clud­ing China, are suf­fer­ing from over­ca­pac­ity with out­put out­pac­ing de­mand.

A fore­cast by CNPC Re­search In­sti­tute of Eco­nomics and Tech­nol­ogy ex­pects gross mar­gins in the sec­tor to be lower this year than in 2016.

In Asia, the sit­u­a­tion is likely to de­te­ri­o­rate with a num­ber of large re­fin­ery projects com­ing on­line or un­der con­struc­tion.

“Re­lax­ing crude im­port li­censes, which al­lowed China’s in­de­pen­dent teapot re­finer­ies to in­crease their op­er­a­tions, have also added to over­ca­pac­ity,” Li, at ICIS China, said.

In­de­pen­dently run firms with rel­a­tively small ca­pac­ity in China tend to range from 20,000 bar­rels per day to 100,000 bar­rels per day.

In the first half of this year, they im­ported more than 40 mil­lion met­ric tons of crude.

To­tal oil im­ports for the same pe­riod were 212 mil­lion tons, ac­cord­ing to the Gen­eral Ad­min­is­tra­tion of Cus­toms.

Wang Lu, an Asia-Pa­cific oil and gas an­a­lyst at Bloomberg In­tel­li­gence, has fore­casted slower growth for the re­fin­ery sec­tor in the next five years be­cause of lim­ited ca­pac­ity. “China no longer plans to boost re­fin­ery ca­pac­ity and re­fin­ers are gear­ing up to pro­duce higher-qual­ity fu­els with less sul­fur to re­duce pol­lu­tion,” she said.

“Rapid ca­pac­ity ex­pan­sion in the past and the econ­omy’s shift away from heavy in­dus­try have made China a net ex­porter of re­fined-oil prod­ucts, in­clud­ing gaso­line, diesel and kerosene,” Wang added. “Sinopec and PetroChina will slow down the pace of re­fin­ing ca­pac­ity ex­pan­sion.”

The rise of “teapot re­finer­ies” has played a ma­jor part in the sup­ply glut, Oceana Zhou, a se­nior an­a­lyst at S&P Global Platts, pointed out.

“Com­pe­ti­tion in the re­tail mar­ket has been in­ten­sive and in­de­pen­dent oil com­pa­nies are also ex­pand­ing their re­tail net­works to com­pete with the State-owned ones,” she said, adding that Sinopec’s re­tail vol­ume fell 3.47 per­cent year-on-year in the first quar­ter.

“The in­de­pen­dent re­fin­ers’ av­er­age oper­a­tion rate is up 7 per­cent year-on-year to 63 per­cent in the first half of 2017,” Zhou added.

Still, she be­lieves China’s re­fin­ing ca­pac­ity will con­tinue to grow in the com­ing years with it ris­ing to at least 462,000 bar­rels per day.

MENG ZHONGDE / FOR CHINA DAILY

A petro sta­tion in Qiong­hai, South China’s Hainan prov­ince.

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