China’s Unipec seeks closer ties with teapot refiners

China Unipec seeks closer ties with teapot refiners copy

BEIJING / Reuters

State oil trader Unipec will develop “really strong” ties with China’s independent refiners, said a company executive on Tuesday, even as they present a growing challenge to
its parent and Asia’s top refiner, Sinopec Corp.
China issued crude oil import quotas to privately run refiners, often called “teapots”, for the first time in 2015, ending decades of exclusive access to overseas oil for state-run oil majors and further stimulating the nation’s voracious demand for crude imports.
With about 2 million barrels per day (bpd) in crude import quotas this year, the growing role of the teapots has forced state refiners to scale back some refinery operations after helping to lift China’s fuel
exports to record highs last year.
Still, Unipec President Chen Bo told Reuters the state trader was building a relationship with the independent refiners, which he dubbed “China New Force Refineries”. “I think in the future we will have a really strong relationship,” he said on the sidelines of a forum organised by Unipec and the China Chamber of Commerce for Petroleum Industry.
The meeting is the first time Unipec has publicly sought a dialogue with the teapots, so-called for the small capacities of their plants compared with the big state-run refineries. Chen said Unipec was open-minded about cooperation with the smaller refiners and would “provide any advantages we have”, such as leveraging its purchasing scale and flexible logistics.
Last year Unipec signed a crude supply framework agreement with the trading arm of Shandong Dongming Petrochemical Group, China’s biggest independent refiner, aiming to supply an initial volume of
8 million barrels of crude in one year.
Unipec said it began supplying crude oil to Dongming under that agreement in October of last year. Dongming Director Zhang Liucheng on Tuesday said Sinopec had opened up to collaboration with the teapots, following the lead of rivals PetroChina and CNOOC.
“On the crude oil market, originally they didn’t sell to us – PetroChina and CNOOC did. But now it’s a trend for everybody to collaborate,” Zhang told Reuters.
Independent refiners made up nearly 90 percent of China’s crude oil import growth last year, helping to put the world’s second-biggest economy on course to challenge the United States as the top importer this year.
With teapots set to play an increasing role in the industry as reforms continue, Unipec has been forced to work with the smaller firms.
“Unipec has resigned itself to working with the teapots but on the crude supply side hasn’t been very successful, basically because PetroChina and CNOOC were there first,” said Michal Meidan, Asia
analyst at Energy Aspects in London.
Unipec has worked well with
the teapots on marketing, selling the independents’ products via its domestic retail arms, she said, but the state trader stopped buying gasoline last month because of
market oversupply.
The efforts to strengthen ties to independent refiners could also be a move by state oil majors to hold onto their clout in the import
markets with China’s long-delayed launch of a crude oil futures contract set for later this year. “The change of tack is interesting … ahead of the start up of the futures exchange,” said Meidan.
China’s crude imports will exceed 400 million tonnes (8 million bpd) this year and are likely to grow by a double-digit percentage next year, a Sinopec Group executive said. China’s crude imports are also expected to grow by double digits in 2018, Zhang Haichao, vice president of Sinopec Group, told Reuters on the sidelines of an industry conference in Beijing on Tuesday.
Zhang’s estimates mean Chinese demand for imported crude would grow by around 400,000 barrels per day (bpd) this year, which would likely make China the world’s largest crude oil importer on an annual basis for the first time ever.
For the first six months of 2017, China imported 212 million tonnes of crude, or 8.55 million bpd,
up nearly 14 percent from the
same period in 2016, according to customs data.
China’s crude oil imports have grown this year amid concerns
over tightening crude supply in
Asia as the Organization of the Petroleum Exporting Countries (OPEC) and other producers extended
production cuts to March 2018.
Zhang’s expectation of strong
Chinese demand for imports holding through the rest of the year comes despite plans by state oil majors
to shut down 10 percent of China’s refining capacity in the third quarter due to a glut of fuel products.
Beijing last month, however,
issued a second batch of crude
import quotas, making this year’s total higher than last year’s amount, helping to underpin the nation’s
demand. Zhang was attending a joint conference hosted by Sinopec Corp trading arm Unipec and the China Chamber of Commerce for Petroleum Industry.

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