China Cuts First Batch of Crude Import Quotas

China has cut the volume of crude oil that can be imported under the first batch of quotas allocated for 2022 — a move that will limit Chinese crude buying.

Beijing allocated quotas for 109 million tons (799 million barrels) of crude oil imports in the first batch — down 11% from the first batch for 2021.

The move is likely to disappoint oil-exporting countries and reinforce their concerns that China's crude imports may peak sooner rather than later.

China's import quotas are for independent refiners and smaller state-owned companies. They do not apply to major state-controlled refiners Sinopec, PetroChina, Sinochem and China National Offshore Oil Corp.

Big New Plants Benefit

China's largest refiner Zhejiang Petrochemical — also known as Rongsheng — was given the largest allocation of 20 million tons.

That is enough to allow the company to run its big new plant at its full capacity of 800,000 barrels per day for six months.

The 400,000 b/d Hengli PetroChemical plant in Liaoning province was allocated a quota of 14 million tons, equal to its allocation in the first batch for 2021.

Newcomer Shenghong PetroChemical, with 320,000 b/d of capacity in Jiangsu province, was given a quota of 7.95 million tons of quotas. That refinery has not been brought on line yet but is expected to start up in February.

Those three big private companies account for almost 42 million tons of the quotas allocated in the first batch — more than a third of the total.

"This is in line with the central government’s policy, which continues to support big new petrochemical refining complexes, and limits small and old teapots," said an industry source based in Shandong province.

Teapots Targeted

China first allowed small independent refiners, known as teapots, to import crude oil in 2015.

The first batch of import quotas for 2022 marks the first time since then that refiners will start the new year with lower allocations than in the previous year.

"The market is becoming tougher for us," said a Shandong-based teapot source.

Beijing has been seeking to close down smaller, older independent refineries and replace them with larger and more efficient modern plants. It also wants to cap China's overall refining capacity by 2025.

China issued a total of 189 million tons of crude oil import quotas in several batches for 2021, a rise of 2.5% from 2020, according to consultancy JLC.

But it is mostly the big new private plants that were allowed to import more crude. Quotas granted to teapots fell by 6.4% to 122.75 million tons in 2021.

State-controlled Sinopec — China's biggest refiner — expects import quotas granted to teapots to fall by 14 million tons (280,000 b/d) in 2022 and their refining volumes to fall by 14%.

Teapots are likely to close down over 40 million tons (800,000 b/d) of refining capacity by 2025, according to Sinopec.

Rare Dip in China's Imports

China's crude oil imports fell by 7.3% to 467 million tons (10.24 million b/d) in the first 11 months of 2021, compared to the same period of 2020.

As a result of this, China's full-year crude imports for 2021 are also expected to fall versus the prior year, for the first time in more than 20 years. However, they will likely exceed 2019 imports of 10.15 million b/d.

China's Ministry of Commerce releases crude oil import quotas in three or four batches each year. Higher volumes could still be allocated in later batches.

However, the ministry has set a 2022 ceiling for crude oil import quotas at 243 million tons (4.88 million b/d), unchanged from the 2021 ceiling, as it seeks to cap carbon emissions from the country's refineries.