BEIJING/SINGAPORE Dec 16 Beijing will not issue
fuel export quotas for independent refineries next year, dealing
a blow to the upstart group of companies and scrapping a key
component of a scheme that has transformed China's oil markets,
three sources said.
The surprise move ends a policy launched at the start of
this year that allowed some privately run refineries - known as
'teapots' - to sell their diesel, gasoline and naphtha abroad,
just a few months after Beijing first allowed them to import
Ending the scheme will hand control of the lucrative export
business back to China's big four state-run oil majors, but it
was not immediately clear whether this will affect the country's
burgeoning refined products exports.
Record Chinese fuel exports, which totaled 30 million tonnes
of gasoline, diesel, jet fuel and naphtha combined in the first
10 months of the year, have contributed to a glut in Asia which
weighed on refining margins DUB-SIN-REF, although teapots
accounted for roughly three percent of the total.
The move means quotas held by 11 firms for around 1.5
million tonnes of fuel exports will expire this month, and no
new quotas will be issued for 2017, three sources familiar with
the government plan said.
The Ministry of Commerce told managers at state firms of the
plan at a meeting on Dec. 2, according to two sources directly
The ministry did not immediately respond to a request for
Zhang Liucheng, vice president of Shandong Dongming
Petrochemical Group, China's largest teapot and one of the
sector's largest fuel exporters, said the government had not yet
made a formal policy statement.
"We're hoping to see a fair policy that applies to both
state-run and private players," Zhang said, adding that teapots
were still lobbying the government.
Zhang said his company may divert cargoes domestically in
the absence of quotas.
The move may temper the rise of teapots, which contributed
over 90 percent of China's 2016 import growth at 925,000 bpd, or
12 percent of China's total crude oil imports.
"With the majors back in control of all fuel exports,
teapots will lose their bargaining chips in domestic fuel
marketing, which could in turn hit their plant operations," said
a Beijing-based trader with an independent firm.
The new players have snared a slice of the domestic market
by selling fuel at discounts to state-run giants Sinopec
and PetroChina, forcing them to cut output
and ship excess product into a saturated global market.
However, China's total refinery output is still set to rise
next year as state refiners bring online new processing
facilities and more teapots win crude import quotas.
"I don't think (the policy uncertainty) will affect total
exports materially," said Nevyn Nah, analyst at Energy Aspects.
The reversal of the policy was partly driven by concerns
about a loss of tax revenues as teapots looked to export more
Both consumption tax and value-added tax are currently
waived for fuel exports, but the government has been pushing
majors to adopt a scheme where refiners first pay value-added
tax and then receive a rebate after exports have been fulfilled.
(Reporting by Chen Aizhu in BEIJING and Jessica Jaganathan in
SINGAPORE; Editing by Richard Pullin)