Independent Chinese Refiners Hurt by State-Run Companies Increasing Production, Imports

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Researched by Industrial Info Resources East Asia (Kofu-shi, Japan)--State-run companies such as China National Offshore Oil Corporation (CNOOC) (Beijing), Sinopec Limited (NYSE:SNP) (Beijing) and China National Petroleum Corporation (CNPC) (Beijing) dominate China's refining industry. Independent refiners do exist, however they are slowly being pushed out of operations by lack of crude oil feedstock. The state-run refiners control China's crude feedstock as well, leaving small portions to independent refiners, which are often called teapots due to their small sizes.

China is currently suffering from a shortage of diesel, which recently worsened in October after the government lowered gasoline and diesel prices. State-run refiners have boosted production and imports, and have since eased the situation slightly, but have yet to eliminate the shortage.

Independent refiners have reduced operations or have even shutdown refineries due to lack of crude feedstock. Some companies, such as Dongming Zhongyou Fuel Petrochemical Company Limited (Heze, Shandong), which operates a small refinery in Shandong province and produces asphalt, shares a joint crude quota with other companies in the area. State-run refiners, such as Sinopec, fill these joint quotas. Typically, teapots refine fuel oil instead of crude, though if given larger amounts of crude feedstock, independent refiners could help reduce the country's diesel shortage.

Industrial Info is currently tracking approximately 50 state-run refineries that are either under development or existing. By comparison, independent refiners make up barely more than 14 refining sites, according to Industrial Info. In terms of projects, an even greater disparity exists between state-run refiners and teapots.

China also reduced import tariffs on refined products such as gasoline and diesel as well as jet fuel and fuel oil, and other countries have been taking advantage. South Korea's refined products have become its number one export, driven primarily by regional demand and a weaker won. Japan also plans to take advantage of China's lower tariffs, though Japanese refiners are expressing concern over a 2010 law passed by the Ministry of Economy, Trade and Industry that requires a better domestic balance of crude units to residue cracking units. To avoid short to mid-term costs, some refiners in Japan are choosing to shutdown refineries.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.