China's August Products Exports Plunge

Copyright © 2021 Energy Intelligence Group

China's exports of gasoline and gasoil plunged in August to levels not seen for several years.

The sharply lower numbers were caused by the government's limited issuance of export quotas, sluggish Asia-Pacific demand for refined products and tighter environmental standards for oil refineries.

Gasoil exports fell to 540,000 tons (130,000 barrels per day) in August, their lowest since May 2015, when Chinese product exports were just starting to ramp up.

August gasoline exports fell to 570,000 tons (155,000 b/d), their lowest since February 2019 when exports slowed as a result of the Chinese Lunar New Year holidays.

Jet Fuel Bucks the Trend

By contrast, exports of jet fuel rose to 920,000 tons (236,000 b/d), their highest since April 2020. But this likely reflected weak domestic demand for jet after an outbreak of the Covid-19 Delta variant prompted Beijing to discourage air travel.

About 22.41 million air passenger trips were made in August, down 51.5% from the same month of 2020, and only a little more than one-third of the trips made in August 2019, according to official aviation data.

Low Quotas Cap Exports

So far this year, China has released export quotas for 37 million tons of gasoline, diesel and jet fuel. That's down by about one-third versus the same period of 2020.

The second round of export quotas for 7.5 million tons of gasoline, diesel and jet was not announced until early August, by which time refiners had almost exhausted their first round quotas.

Exports may pick up this month, but any increase is likely to be limited, because refiners had already used up 2.03 million tons in August.

Most of the volumes allocated go to state-controlled refiners Sinopec, PetroChina, CNOOC and Sinochem.

The market expects additional quotas to be allocated in October or November, but sellers will remain cautious until then.

Sluggish demand in export markets, combined with slower domestic demand growth, may prompt refiners to cut crude throughput further.

Crude runs at the country's refineries fell 1.2% from July to 13.8 million b/d in August — the lowest level since May 2020.

A new Covid-19 outbreak in the southern province of Fujian — with more than 300 cases reported since Sep. 10 — could further curtail domestic travel.

Environmental and Climate Factors

There is also growing talk that Beijing may be limiting export quotas as part of a deliberate effort to rein in the country's overall output of refined products.

Exports of gasoline, diesel and jet for the first eight months of this year amounted to 31.13 million tons, an increase of just 1.4% over the same period of 2020.

A central government-led environmental team reportedly started investigations in late August in the province of Shandong, which is home to roughly half of China's small independent "teapot" refiners.

This could lead to measures being taken against the teapots, which are seen as a source of pollution and have been given lower crude import quotas this year.

That in turn would further reduce domestic production of gasoline and diesel, and leave China with a smaller surplus of refined products that it needs to export.

Consultancy Energy Aspects said recently that the National Development and Reform Commission has proposed internally that China should halt exports of gasoline and diesel by 2025 to rein in carbon emissions and reduce dependence on imported crude.

While the proposal may not gain much further momentum, such discussions suggest that China may tilt its refining capacity rapidly toward production of petrochemicals as it discourages exports of petroleum-based fuels.

China's August Products Exports
 Aug'21 (million tons)Aug'21 ('000 b/d)Jul'21 ('000 b/d)M-o-M %Chg.Y-o-Y %Chg.

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