China May Approve More Crude Imports for Teapots

More independent refineries seek crude import quotas. Total quota may hit 2 mln bpd by end-2016.

China could approve more crude import quotas for independent refiners that will bring the total volume to close to 2 million barrels per day (bpd) by the end of 2016, an industry official said on Wednesday.

"We expect annual crude import quotas to reach about 100 million tonnes (2 million bpd) by the end of this year," said Zhang Liucheng from China's largest independent refiner Dongming Petrochemical at an industry event.

The independent refiners, known as teapots, drove China's crude imports in the first four months of 2016 to all-time highs, rising 12 percent higher than the same period a year ago.

The teapots had mainly consumed fuel oil as a feedstock and only largely began processing crude oil after winning import licences last year.

Crude will account for more than 90 percent of feedstock at the independents in 2018, as they shift away from fuel oil, said Zhang, vice president for trading and marketing at Dongming.

Russia was the main crude supplier to the independents in the first quarter, followed by Oman, Angola and Colombia, he said.

However, Russian ESPO crude has become uncompetitive and independents were likely to import more from the Middle East and West Africa in the future, Zhang said.

Nick Mai, an analyst at commodities information provider Argus, said 14 independent refiners have received crude import quotas of 1.2 million bpd.

Another eight companies were waiting for approvals for total quotas of 660,000 bpd as of May, he said, although Beijing has slowed down approvals due to port congestion at Shandong province where most of the independents are located.

The uncertainty "made it hard to estimate how much crude they will import," Mai said.

Independent refiners have also exported their first gasoline cargoes, contributing to the rise in China's fuel exports. Shandong Chambroad Petrochemical exported its first 20,000 tonne gasoline cargo in May, Mai said, adding that Dongming has exported four cargoes.

China exported a monthly average of about 643,000 tonnes of gasoline from January to April this year, up nearly 54 percent versus the month average for the same period in 2015.

Still, the lack of export infrastructure will cap fuel exports from independents.

"We're not going to see a quick boom in product exports," Mai said. "Give it another two years and it could affect exporters such as South Korea and Saudi Arabia."

Reporting by Florence Tan