China's decision to allow more independent oil refiners to import crude oil will help to improve fuel quality and lower domestic fuel prices, the governor of Shandong province, the country's hub of small refineries, said. China, the world's second biggest crude importer after the United States, has had strict controls on oil imports to ensure stable domestic supplies. State-controlled companies Sinopec and PetroChina account for nearly 90 percent of the country's inbound crude shipments.
But last month, Beijing took advantage of a global oil price collapse to loosen the tightly state-control sector, which will allow smaller refiners to apply for crude oil import quotas. "This new policy breaks the previous situation that only three to four big companies are allowed to import crude oil," Guo Shuqing, governor of the eastern province told reporters on Saturday during an annual parliament meeting.
Shandong is home to most of China's so-called swing refining capacity, estimated by industry experts at roughly 20 percent of the country's total. These small plants, often backed by local governments or privately owned, have for years been excluded from direct access to crude oil, let alone foreign supplies. Instead, they have been processing fuel oil, a heavy refined fuel that is normally dirtier than crude oil. "It (the policy) may help improve fuel quality, clean up the air and also lower the fuel prices consumers pay," Guo said.
Shandong has about 100 million tonnes of oil refining capacity (roughly 2 million barrels per day), but throughput last year was only about 50 million tonnes, Guo said. That would be equivalent to about a 50 percent utilisation ratio, significantly below the big state refiners' average operation of 80 percent or above. Under the new rule, refiners with a minimum annual crude refining capacity of 40,000-bpd would need to demolish outdated refining facilities in exchange for being able to apply for crude oil imports.
Guo said he considered it was achievable for Shandong plants to remove up to 20 million tonnes annual capacity, or 400,000 bpd. He also said local authorities would be ruthless in closing down petrol stations that sell sub-quality fuels. Last year, in the city of Heze alone, more than 200 gas kiosks were forced to shut for that reason. Guo, formerly a state bank executive and head of the country's securities watchdog, has been seen by the oil industry as a strong backer for Beijing's plan to launch Shanghai crude oil futures.
Oil traders have said that a loosening of the oil import rules could provide the liquidity needed to ensure the success of an oil futures contract. Guo also said Shandong would slow down the process of adding new coal-fired power plants in the province and use more clean coal. Coal fuels some 80 percent of Shandong's power generation.
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