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New Quotas Set to Boost China's Crude Imports

Copyright © 2021 Energy Intelligence Group
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China has issued a new batch of crude import quotas for independent refiners that should boost the country's crude imports.

The quotas, announced on Friday, will allow the new 320,000 barrel per day Shenghong refinery to begin trial runs next month and the 400,000 b/d Hengli refinery to run at full capacity through the end of this year.

No quotas were granted to the 800,000 b/d Zhejiang Petrochemical refinery, where the ramp-up of the second phase has already been delayed. However, the market expects it to receive additional quotas soon.

The finance ministry approved 14.89 million tons (109.14 million barrels) of quotas for independent refiners for the rest of this year. That's equivalent to 1.42 million b/d of crude for the remaining 2½ months of the year.

This latest batch brings total import quotas approved so far this year to 177.14 million tons (1,298 million bbl) — equivalent to 3.56 million b/d when spread out over the entire year.

The country's major state-owned refiners do not require quotas to import crude oil.

Fresh Impetus for Crude Imports

The new quotas are expected to give a fresh impetus to China's crude imports.

Independent refiners have been an important driver of growth in China's demand for crude oil in recent years. But some of them had already used up their quotas for the year, while others had been forced to slow down their crude purchases.

This has been reflected in official Chinese import data, with crude imports for the first nine months of the year averaging only 10.4 million b/d, which was 750,000 b/d lower than in the same period of last year.

Early October imports have also been anemic. Around 7.7 million b/d of crude has landed in China in the first 10 days of the month, which data analytics firm Vortexa said was on track for a four-year low.

Just in Time

The new Shenghong plant, which had been stuck in limbo for lack of feedstock, was granted a quota for 2 million tons of crude, or 14.66 million bbl.

Shenghong had originally planned to start trial runs in August, but this has been pushed back to around mid-November, Energy Intelligence understands.

China's National Development and Reform Commission (NDRC) had already given Shenghong permission to import crude in September — an important step before the finance ministry approves quotas.

In anticipation of being granted a quota, Shenghong had purchased two October-loading cargoes of Russia's East Siberia-Pacific Ocean (Espo) crude as well as some Saudi crude, said four market sources.

Two Espo cargoes would typically add up to around 1.5 million bbl of crude.

But with Espo taking less than a week to reach northeast China, and no new quotas in sight earlier this week, market sources said Shenghong had been uncertain that it would in fact be able to take delivery of those cargoes.

As things turned out, the new quotas were announced "just in time" for Shenghong, said a source at a major Chinese market player.

The Hengli refinery was also granted quotas for 3 million tons of crude, bringing its total import quotas to 20 million tons or 400,000 b/d for the entire year. This should allow the plant to run at full capacity through the end of 2021.

Logistical Challenges

The Zhejiang Petrochemical refinery — commonly known by the name of its majority shareholder, Rongsheng — did not receive any import quotas this time round.

It had been given an additional quota in August, but those were insufficient for Rongsheng to ramp up the 400,000 b/d second phase of the 800,000 b/d plant.

However, six market sources said Rongsheng is expected to be granted another new quota soon.

A trader at another major Chinese market player thought Rongsheng could be allowed to import another 4.5 million tons (32.99 million bbl), which would be equivalent to 540,000 b/d for the last two months of the year.

But Chinese market source said some believe Rongsheng could be granted as much as 10 million tons (73.3 million bbl).

Even if Rongsheng gets the green light to import more crude, however, it is facing a logistical bottleneck.

At least five very large crude carriers chartered by Rongsheng and carrying 10 million bbl of Saudi crude have been waiting offshore for at least seven days, according to Vortexa.

The berth at Rongsheng's second phase has not been approved by the authorities yet and the resulting congestion is likely to persist until approval is granted, said an analyst focused on China.

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