Page 11 - AsianOil Week 15 2021

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down on independent refiners it deems to be situation where privately funded mega-refin-
inefficient. eries have emerged to challenge their state-run
Beijing, eager to stamp out low-grade fuel counterparts.
producers, restricted crude oil imports to state-
run traders and refiners. The move should have What next
made it more difficult for teapot refiners to sur- Hengli Petrochemical and Zhejiang Petro-
vive, but support from local authorities and a leum & Chemical (ZPC), for example, have
shift to processing Russian straight-run fuel oil each launched 400,000 bpd mega-refineries in
(SRFO) allowed the sector to thrive. Zhoushan City and Dalian Port respectively.
The central government offered the private Hengli became the country’s first private
sector an olive branch in 2015, when it began refiner in October 2019 to receive the Civil
relaxing restrictions around crude imports even Aviation Administration of China’s (CAAC)
as it enforced minimum capacity requirements. approval to supply jet fuel for commercial use. It
The move aimed to encourage the sector, with was widely seen at the time as an important step
a stick and a carrot, to consolidate and invest towards being able to export oil products.
in more efficient and advanced equipment that It was ZPC, however, that became the coun-
could produce higher specification and cleaner try’s first private firm capable of exporting fuel
fuels. overseas, after winning a licence in July 2020.
It was also to promote competition with the The move allowed the private company to com-
fuel retail market, which had long been domi- pete with the state majors on the international
nated by the state majors who had little incentive stage for the first time.
to improve their operational efficiencies. ZPC’s evolution into an oil product exporter
The result has been the emergence of a was signposted by the State Council in late 2019,
cutthroat domestic fuel market, with teapot when it issued a guideline stipulating that “eli-
refineries processing record volumes of fuel gible” private would be able not only to import
and pricing themselves aggressively against crude oil but also export oil products.
their state rivals. This saw the country’s private The central government has made it clear that
sector manage to process 3.16mn barrels per it is content to liberalise the fuel export market
day (bpd) oil in 2020. as long as private players embrace economies of
As competition increased on the home front, scale. Companies such as ZPC and Hengli are
China’s state giants turned to the export mar- the poster children for Beijing’s ambitions for
ket, where they had enjoyed a monopoly until the independent downstream.
2020. This helped the country’s crude imports Smaller refiners that have survived through
to soar to record levels, with shipments climb- provincial government protections or creative
ing to 10.93mn bpd last year from 10.17mn bpd accounting measures should consider their days
in 2019. In March this year, imports climbed by numbered. They are likely to struggle to compete
21% year on year to 11.74mn bpd. in a market where the best they can hope for is to
However, by opening up crude imports be overlooked. More expansionist independents
to eligible private refiners, Beijing created an capable of winning Beijing’s favour have more
environment that fostered private investment reason than ever before to try to expand their
in the downstream. This, in turn, created a market share.™

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