China's Private Refiners Plan to Diversify Suppliers

China's Private Refiners Plan to Diversify SuppliersChina's Private Refiners Plan to Diversify Suppliers

Crude with a lot of sulfur, including supply from Saudi Arabia and Iran, is too sour to be processed easily at its plants, said Zhang Liucheng, director and vice president at Shandong Dongming Petrochemical Group, the biggest among China’s private refineries.

"Most of the independent companies, which have been courted by sellers since they were granted access to international oil markets last year, are instead seeking ‘sweeter’ cargoes with lower sulfur content," Zhang was quoted as saying by Bloomberg.

Such crudes are typically pumped in regions such as Africa, Latin America and Russia, meaning producers there could gain the most from purchases by private refineries, which now account for a fifth of demand in the world’s second-biggest oil consumer.

The processors, known as teapots, have contributed to China’s record imports this year and helped revive global benchmark prices. Shandong Dongming says it is open to buying cargoes from state oil companies or international trading houses.

“We did take a look at crude from Saudi Arabia but found its quality to be a bit too sulfurous and not economic to refine,” Zhang said in an interview in Singapore.

“We have no preference when it comes to purchasing oil from state-owned producers and trading houses. State-owned sellers can provide secure supplies, while international traders can give us more flexibility in terms of prompt cargoes, financing and logistics.”

The company owns two refineries, one with a processing capacity of 240,000 barrels a day in Heze in the eastern Shandong Province, where most of the private processors are clustered, and another of 60,000 barrels a day in Lianyungang in Jiangsu Province, according to its website.

It is one of the firms approved to use foreign oil last year as part of the Chinese government’s efforts to liberalize its energy industry.

While most independent refiners prefer low-sulfur crude varieties, it does not mean that processors are not open to testing supplies from producers such as Saudi Arabia.

The world’s biggest exporter has maintained its shipments to the Chinese market, while Iran is said to be in talks with trader Trafigura Group to break into the market.  “We want to be recognized as one of the significant players and we’re pushing for more equal opportunities for crude procurement and access to infrastructure and retail markets,” Zhang said.