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CDUs have seen the number of privately oper- created a pressure cooker effect on the domes-
ated refineries tumble rapidly in recent years. tic fuel market, with state companies forced to
Where private players used to number in the become more efficient and driving smaller pri-
hundreds, they are now counted by the dozen. vate companies out of business.
Private players have been squeezed by new The private sector is now chasing economies
tax rules, emissions standards requirements of scale not only to survive, and the trend of big-
and minimum capacity constraints. At the same ger and better facilities looks set to continue as
time, however, the number with access to crude the downstream seeks to thrive.
imports has grown.
What next
Government rationale The National Development and Reform Com-
From 11 in 2015, the number of teapots with mission (NDRC) approved on June 1 a plan to
crude import quotas has risen to 17 this year. build a $20bn downstream complex in Yantai,
China issued 26.84mn tonnes (196.74mn bar- Shandong Province, Reuters reported at the
rels) of crude import quotas to non-state play- time.
ers in its third batch for 2020, Reuters reported The development is to be led by privately
on July 9, quoting three unnamed sources. ZPC owned aluminium smelter Shandong Nanshan,
was among the winners, securing 2.4mn tonnes while petrochemical group Wanhua and the
(17.59mn barrels). local government will also invest in the project.
The award raises China’s total released quota The approval reportedly drove the Shan-
of non-state crude imports to 184.55mn tonnes dong government to initiate a plan to shut
(1.35bn barrels) this year, compared with the down 500,000 bpd of capacity shared among
202mn tonnes (1.48bn barrels) the Ministry of smaller teapots. Some doubts have been cast
Commerce awarded for the whole of 2019. over whether the province will be able to shutter
China granted private players access to the as much capacity as proposed, with US-based
international crude market in order to make the Baker Institute for Public Policy research fellow
domestic downstream more competitive. Prior Gabriel Collins telling the Petroleum Economist
to the import reform, the teapots had to rely on that such consolidation efforts “almost never” go
their state rivals to provide feedstock. Under- to plan.
standably, crude was relatively hard to procure Collins said: “Those [additional oil product]
at attractive prices and the teapots relied on Rus- barrels will head onto the export market, with a
sian straight-run fuel oil (SFRO) to serve as their competitive sweet spot east of Suez.”
feedstock, producing diesel fuel for the agri-sec- The rise of the privately owned mega refin-
tor as well as power generation. ery has transformed the Chinese downstream,
Permitting access to crude imports not only affording this new breed of independent a far
allowed private refiners to become more effi- more level playing field. With larger and more
cient, producing higher-value fuel, it also allowed sophisticated independent refineries coming on
them to reduce their emissions footprint. stream, it is likely only a matter of time before
The caveat, however, was that their out- other major private refiners are granted access
put was locked into the domestic market. This to the export market.™

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