RTRS:China looks to further open crude oil import market
Aug 13 (Reuters) - China is considering opening up its crude import market to more refineries outside its dominant state giants, with quotas of at least 10 million tonnes being discussed for new entrants in 2014, according to traders and a government document seen by Reuters.
Any new quotas would follow the entry this year by refinery operator ChemChina into the tightly controlled crude import market, and signal a further measured opening of crude purchases to smaller players as China prepares to add refining capacity.
China imports about 5.7 million barrels per day (bpd) - nearly 6 percent of gobal supply - and this is expected to rise toward 9 million bpd by 2020, according to industry estimates, offering potentially lucrative opportunities to global oil majors and traders in an open market.
China's growth in demand over the past decade has been a key factor in a long-term rally that has taken Brent crude above $100 a barrel and kept it there for most of the past two years.
Ten million tonnes is equivalent to about 200,000 bpd, and would represent an incremental step in opening up imports.
China has kept tight control over crude imports to ensure stable domestic oil supply, with state giants Sinopec and PetroChina controlling nearly 90 percent of the country's total crude oil imports.
The government has preferred to work through the two state firms than deal with many competing importers, but may feel that more domestic competition will push the pair to keep fuel supply abundant even when refining margins are poor.
"Under the principle of optimizing industry structure and phasing out backward capacities, (the government) shall grant crude oil processing enterprises that meet quality, environmental and safety standards the right to import and use crude oil," according to a directive from the State Council seen by Reuters.
The paragraph, which also includes a line calling on crude oil operators to establish commercial reserves, is part of a broader policy initiative the cabinet put out in late July aimed at boosting imports and exports. It was not publicly announced but circulated among traders. No further details were given.
REFINERS VIE FOR QUOTAS
The directive has sparked a furious round of positioning by smaller refineries - most of them based in Shandong province and many privately run - hoping to win the right to import crude directly, traders said.
This would allow them to better compete with big refineries rather than having to rely on poor quality fuel oil as feedstock.
Talk among traders suggested about a half dozen new entrants could receive crude import quotas.
"All are jumping around after the policy came out, holding meetings and figuring what to do next to get on the list," said a senior trader with CNOOC.
"Those plants backed by the big state companies are the more likely winners," he added.
Traders pointed to two local refineries controlled by state-run Sinochem Corp and PetroChina-parent China National Petroleum Corp (CNPC) as potential winners.
These were Hongrun Petrochemical, an independent fuel producer that operates a 100,000 bpd refinery in the eastern province of Shandong, in which Sinochem has a controlling stake, and the 240,000 bpd Dongming refinery, which is about 40 percent owned by CNPC unit CNPC Fuel Oil.
"We are hearing that private refineries are rallying support from the (Shandong) provincial government to apply for the permits," said a second senior Beijing-based trading official.
China regulates its crude oil imports via a quota system, dividing quotas into two groups - "state" and "non-state". Sinopec and PetroChina fall under the first category and the size of their quotas are largely at their own discretion, based on refinery production plans.
Scores of other firms obtain "non-state" quotas - totalling 29.1 million tonnes this year - but most of these companies are affiliates of the big two firms and few actually own refineries. Most of these quotas are either sold back to the big two or not used, Chinese traders said. (Additional reporting by Beijing newsroom and Florence Tan in Singapore; Editing by Richard Pullin)
