China's qualified refineries hungry for remainder 2023 crude import quotas

China's qualified refineries, including privately-held complexes and small-sized independent plants, are hungry for the remainder crude import quotas for 2023 as well as extra allowances to facilitate their respective crude procurement plans, refinery and industry sources told S&P Global Commodity Sept. 12.

Some refineries in Shandong, which have used up their quotas and taken extra barrels that are headed to China amid expectations that allocations will be made soon, are more anxious than their peers.

In the country, refineries built and operated by state-owned companies, namely Sinopec, PetroChina, CNOOC and Sinochem, do not need quotas to import crude. All other refineries, including independents and those owned and operated by state-owned companies such as ChemChina and Norinco, require quotas to refine imported crude.

"Hopefully, the remaining quotas [within their annual allowance ceiling] would be awarded by end-September, then followed with the extra quotas [on top of the quota ceiling] by early October," a Weifang-based refining source said.

Market sources and analysts estimated up to a combined 37.8 million mt (277.07 million barrels) of quotas will be released, comprising 10.45 million mt of the remaining quotas for 15 refineries and an extra 27.36 million mt to 18 refineries which have been allocated 100% of their annual quotas. The extra quotas were estimated from a similar allocation in October 2022, which amounted to about 24% of the annual quota ceiling.

The 20 million mt/year Hengli Petrochemical (Dalian) Refinery, expecting to receive 3 million mt of quotas before hitting its annual ceiling, is leading the 15 anxious refineries hoping to get their hands on the remaining quotas.

Hengli imported a total 13.59 million mt of crudes over January-August, leaving 3.41 million mt of quotas to cover imports from September onwards before fresh allocations.

Its peers, the 40 million mt/year Zhejiang Petroleum & Chemical and the 16 million mt/year Shenghong Petrochemical have been allocated 100% of their annual quotas, which would be sufficient to cover their imports for the whole year.

Small-sized refineries

Meanwhile, 14 small-sized independent refineries expect around 7.45 million mt of crude import quotas to be allocated by end-September.

"Most small-sized refineries still have enough quotas to cover their imports for October cargoes, so they are calling for more quotas to be allocated for November cargo imports," an analyst said.

In the first eight months of the year, China's small-sized independent refineries imported a combined 73.6 million mt of crude feedstocks, accounting for 80.5% of their combined crude import quotas allocated in the previous batches.

On top of the remaining quotas, independent refineries also expect to receive an additional round of crude import quotas around end-September or early October, similar to what happened in October 2022.

A Weifang-based independent refiner, which booked October-arrival cargoes, would be eager to have on hand by end-September an additional batch of crude import allocations.

"Otherwise, we'll have to put the crudes into bonded storage tanks," a source with the refinery said. The refinery, which received 100% of its quota allocations from previous batches, will have no available quotas for cargo imports beyond September.

In October 2022, the government issued the first batch of crude import quotas for 2023 at 19.93 million mt in an effort to aid international trade flow towards the end of the year.

Independent refineries were surprised by the unexpected allocations. Therefore, only some were able to fully utilize the quotas, while the rest did not import a single drop beyond their respective ceilings.

Yulong to import by year-end

The upcoming 20 million mt/year Yulong Petrochemical will import its maiden crude cargo by year-end, upon securing its crude import quotas, sources with close knowledge of the matter said.

Yulong Petrochemical, located in Shandong province, home to many small-sized independent refineries, started construction of its 2.6 million mt/year residue hydrocracker at Yulong Island in eastern Shandong province at end-August. This could signal a slower pace for construction projects, and as such the refinery is only expected to start full operations in first-half 2024, according to analysts.

"The timing as to when to start up the refinery will be a comprehensive consideration regarding the construction progress at the refining projects, the profit of downstream products, as well as the commitment to investors and the local government," said Fenglei Shi, director for Greater China Oil Markets, Midstreams and Downstream at S&P Global Commodity Insights.

The complex, which was set up with the aim of consolidating outdated capacities in Shandong province, will have to apply for crude import quotas; on condition that it completes a certain portion of construction prior to importing its first crude cargo.

Around 10 independent refineries with a total capacity of 27.5 million mt/year were phased off in order to swap their crude import quotas to Yulong Petrochemical.