China issues full-year crude import quota in Jan, boosting refiners' flexibility

China, for the first time, issued its full-year crude oil import quota in January, increasing flexibility for local refiners, instead of the usual practice of allocating the annual quotas in at least three batches across the year, quota holders told S&P Global Commodity Insights Jan. 2.

The 176.82 million mt (1.3 billion barrels) of crude import quotas issued in January were allotted across 33 refineries, according to the quota holders.

In January 2023, the government issued 108.78 million mt of crude import quotas, and by the end of the year a total of 185.28 million mt of quotas had been allocated to the refineries across four batches, including one batch in mid-December

The government sets a maximum crude import quota volume for a year based on refineries' total registered capacity and the application conditions that they have met. The current maximum level stands at 181.5 million mt. This annual ceiling has been reached for 2024 as the government in mid-December issued 4.68 million mt of crude import quotas, which it said is part of the volume of the 2024 quota but had to be used in December 2023.

With the 176.82 million mt of quotas issued in January and the 4.68 million mt issued in mid-December, the 181.5 million mt ceiling has been hit for 2024.

Of the 4.68 million mt issued mid-December, Shandong province refineries received 3.68 million mt and Hengli Petrochemical (Dalian) in Liaoning province received 1 million mt, S&P Global previously reported.

It was not immediately clear whether the government would allocate extra quotas for 2024.

But market sources and analysts widely expect that the 400,000 b/d Yulong Petrochemical plant in Shandong province will be granted up to 10 million mt (73.33 million barrels) crude import quotas, which may start trial runs in the second quarter of this year.

Yulong is not included in the list of quota winners in this batch. It had been awarded 300,000 mt of crude import quotas in November and once fixed an ESPO cargo for December delivery, market sources said, adding that Yulong later withdrew the buying.

Considering Yulong, "we anticipate that the total volume of crude oil import quotas to the refineries to be used this year will reach about 1.38 billion barrels," said Mengbi Yao, a senior analyst with S&P Global Commodity Insights.

Flexibility

"This alteration in the distribution pattern is set to enable independent refineries to more effectively plan their quota usage over the year. However, it doesn't signify a relaxation of the government's stringent control over the carbon-intensive oil industry by setting an annual cap on private refiners' feedstock imports," Yao added.

Some refining sources in Shandong also said the current allocation suggested the government had relaxed its control on quota management, leaving more room for them to plan their feedstock procurement.

In China, refineries built and operated by state-owned companies CNOOC, PetroChina, Sinochem and Sinopec do not need quotas to import crude, and integrated mega refineries have sufficient import quotas. All other refineries, including independents and those owned and operated by state-owned companies such as ChemChina and Norinco, require annual quotas.

However, the full allocation continues to lag behind the combined refining capacity of the 33 refineries, which is at 234.70 million mt/year (4.71 million b/d), according to S&P Global data.

"It's expected that the independent refineries will keep importing alternative feedstocks, like fuel oil, to make up for the potential shortfall in crude oil import quotas in 2024," Yao said.

China has set its 2024 fuel oil import limit at 20 million mt, up from 19.2 million mt for 2023, S&P Global reported.

The independent refineries imported 11.91 million mt of fuel oil over January-November 2023, surging from merely 1.24 million mt in the same period in 2022, S&P Global data showed.

In addition to the refineries, the government also issued 2.19 million mt crude import quotas to trading houses, leading the total allocation to 179.01 million mt in this batch.

The trading houses usually resell the imported crude oil barrels to the refineries. The refineries need to use their own quotas when buying barrels from the trading houses.

China's crude oil import quota allocations (mil mt)

Source: Market sources