China cuts crude oil import quota and favors mega-refiners

Pressure gauges sit on pipework at a shale gas collection and transfer facility at the Fuling shale gas project site, operated by Sinopec Chongqing Fuling Shale Gas Exploration and Development Co., a unit of China Petrochemical Corp. (Sinopec), in Jiaoshiba, Chongqing Municipality, China, on Wednesday, June 20, 2018. In 2013, the U.S. Department of Energy estimated China was sitting on the world's largest reserves of shale gas, almost double the U.S. and enough to theoretically supply the country for more than a century. The reserves are also deeper, harder to reach and more broken up than those in North America. Photographer: Qilai Shen/Bloomberg — Pressure gauges sit on pipework at a shale gas collection and transfer facility at the Fuling shale gas project site, operated by Sinopec Chongqing Fuling Shale Gas Exploration and Development Co., a unit of China Petrochemical Corp. (Sinopec), in Jiaoshiba, Chongqing Municipality, China, on Wednesday, June 20, 2018. Photographer: Qilai Shen/Bloomberg

China’s government cut the amount of crude oil import quota awarded to independent oil refiners and favored large, complex processors as it seeks to reform the sector.

Beijing granted 109 million tons of allowances to 42 private refiners in the first batch for 2022, according to officials from companies that received notification of the allowances. That was 11% less than in the first tranche for this year.

Almost 40% of the quota was awarded to three mega-refineries: Zhejiang Petroleum & Chemical Corp., Hengli Petrochemical Co. and Shenghong Group. These companies operate large, sophisticated plants that are less pollutive than the smaller so-called teapots, most of which are in Shandong province.

The allocations fit with Beijing’s strategy to reform the sector to cut pollution and crack down on unethical practices. The government is currently probing several teapots over tax irregularities. The Ministry of Commerce, which oversees the quota system, didn’t immediately respond to a fax seeking comment.

The number of firms that received allowances this time is less than 56 a year ago, with three of the larger teapots — Shandong Wonfull Petrochemical Co., Shandong Haiyou Petrochemical Group Co. and Shandong Qingyuan Petrochemical Co. — not getting any at all in this batch.

The release of the import quota for independent refiners had been delayed this year, while the wider sector is still waiting for the release of fuel export allowances. As a result, many teapots have been opting to ship in fuel oil, which can be processed into other oil products.