Changes in economy, refining industry push China’s diesel exports higher – EIA

A structural shift in its economy, which is reducing diesel demand, and reforms in its refining sector that are contributing to higher refinery utilisation and diesel production has prompted a sharp increase in China’s diesel exports, the U.S. Energy Information Agency (IEA) said in a report.

It said these two factors have pushed China’s exports of diesel higher from 2015 to reach more than 300,000 barrels per day in April.

Current low prices in global diesel markets can be attributed to slow demand growthhigh inventories as a result of reduced winter heating demand in the United States and Europe, and from new or expanded refinery capacity in the Middle East designed to maximize diesel production, the report said.

china dieselParticularly relevant to the Asia-Pacific market is the emergence of China as a growing net exporter of diesel. China was a key driver of diesel demand growth over the past several decades, but is now a net diesel exporter, contributing to the growing oversupply in global diesel markets, it aded.

 

China’s economy is gradually shifting from heavy manufacturing to commercial services and personal domestic consumption, the report said, adding that as part of this transition, demand for gasoline and jet fuel has grown more than the demand for diesel.

“Chinese refineries—which tend to have high diesel yields—increased refinery runs to meet demand for gasoline. Slower demand growth for diesel combined with increased coproduction of diesel has resulted in high inventories and increased supply in China.”

The report said that China is also reforming its refining sector by liberalising import and export restrictions on crude oil and petroleum products. This reform allows increased competition in the domestic transportation fuels market.

Most of China’s refining capacity is run by two large state-owned enterprises (SOEs), PetroChina and Sinopec, which together account for 72 percent of China’s total refining capacity. The remaining refining capacity is controlled by independent regional companies that often run small, less-complex refineries, commonly known as teapots or teakettles.

To improve the efficiency of these independent refineries and to increase competition in its domestic fuels markets, China began granting crude oil import licenses to some of the independent regional companies in July 2015, the report pointed out.

Previously, independent refiners mainly imported and processed heavy fuel oil, a lower-quality feedstock compared to crude oil, and had limited access to some domestically produced crudes. Many of China’s independent refineries are located in northeastern Shandong province and receive crude oil imports from the port city of Qingdao.

Qingdao’s crude oil imports as a share of total Chinese crude oil imports reached 31 percent in April, the highest share since data became available in 2011.

Refining crude oil instead of fuel oil allows the independent refineries to improve efficiency and to produce a slate of higher-value products, such as gasoline and jet fuel. Higher output of these products is increasing competition with the SOE refineries and decreasing SOE market share in regions with independent refineries. The supplies of diesel produced at SOE refineries, which would normally have been delivered to serve those regions, must now find alternative markets through exports, the report said.

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