China’s Teapot Refineries to Start Exports

China’s Teapot Refineries to Start ExportsChina’s Teapot Refineries to Start Exports

Beijing will allow independent refineries to export refined fuel next year for the first time, sources said, freeing up 20% of China’s refining capacity for sales abroad as the government aims to cut a local glut and boost investment.

The move will allow independent refineries, also known as “teapots” such as Dongying Yatong Petrochemical and Panjin Beifang Asphalt Fuel, to enter the lucrative international market for the first time, raising concerns about a fresh flood of excess diesel and other fuels into Asia, Reuters reported.

Currently only state-owned refiners, Sinopec Corp and PetroChina and some smaller state oil firms are allowed to sell abroad.

In a rare meeting last week, attended by several provincial trade officials and teapot refinery executives, China’s Ministry of Commerce told the plants they can now apply for first-quarter fuel export quotas, according to three sources with direct knowledge of the matter.

“It’s an encouraging development as we will be allowed the same playing field as the big firms to export fuel,” said a refinery executive who was at the meeting.

The move will likely add further pressure to Asian oil product prices that are already sagging under the weight of excess barrels from mega Middle Eastern plants.

China had this year also raised the dominant state refiners’ export quotas for diesel, jet fuel and gasoline to thin swelling domestic inventories as refinery output outpaced demand in a cooling, manufacturing-heavy economy.

While it’s not clear how many teapots will apply for permits, traders estimated it could mean an additional 3 million-5 million tons (24 million-40 million barrels) of products will be sold abroad next year, in addition to the roughly 30 million tons assigned to the country’s state-owned refiners this year.

The combined exports of about 700,000 barrels per day (bpd) would be equivalent to nearly 7% of China’s total oil use.