The Intertanko Tanker Event 2019 in Singapore opened with tanker owners and operators given the background behind China’s growth in crude oil imports and the impact on tanker trades.
The key year was 2014, when the Chinese Government allowed unprecedented reform in the crude oil refining industry and as a result, between 2014 and 2018 there has been a growth in crude oil imports equivalent to 500 extra VLCC voyages.
In the latest round of reforms, the government released seven greenfield sites to private refinery companies with the aim of producing up to 1M b/d.
However, development of the sites is slow as China is already producing a surplus of most oil products and delegates heard that domestic gasoline prices are actually lower than the price of crude oil from which it is derived.
Regarding the continued imports of Iranian crude oil, the Chinese Government’s statement is that it has a right to buy crude oil from whom it wishes, but at a practical level, some of the Chinese state-owned companies are also partially floated on US stock exchanges, which may prove difficult as the trade war and sanctions progress.
The increase in Chinese crude oil does not appear to all be going through the refinery process, with a significant portion going into the Chinese state reserve. An estimated 88 days has been amassed against the expected target of 90 days.
Tanker owners sitting in the room also heard that the famous ‘teapot’ refineries appear to be operating at negative margins.
It was explained that previously, the teapot refineries had been profitable by avoiding a consumption tax, but the government has introduced legislation that considerably reduces this loophole.
Another pressure on the teapot refineries is the government’s pressure to be greener and produce high-quality gasoline, which requires new investment and a greater debt burden.
On the positive side, in the past Chinese refineries did not participate in the international bunker market but now they are running at considerable distillate surplus, there is the opportunity for Chinese refineries and Singapore traders to provide the marine market with distillate to replace high sulphur fuel.
But Intertanko’s owner and operators were cautioned that the new refineries in China are geared toward the highest value products, which in the domestic market are petchems, and are optimised to produce around 10% less oil products compared to similar-sized refineries.