China's Independent Oil Refineries: An Inside Look - Surviving Amid Mounting Challenges

Exclusive Report from 5-day Tour, Executive Interviews, at Shandong "Teapot" Refineries

East Coast Province Home to 80% of China's Small-Scale Gasoil, Gasoline Producers

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Dec 16, 2014, 02:31 ET

SINGAPORE, Dec. 16, 2014 /PRNewswire/ -- Independent oil refiners in eastern China, responsible for some 30% of the nation's refining capacity, are confident of survival despite major headwinds, according to a just-released installment of a 5-part series looking at the capabilities and strategies of the nation's so-called "teapot" or "tea kettle" oil refineries. Platts' special "inside" view reveals how these small-scale entities are surviving and dispelling perceptions the sector is "inefficient" and/or "unsophisticated."

Shandong's teapot refinery hubs and capacities

Like their state-owned peers, teapot refineries' production is mostly gasoil and gasoline, the majority of China's total oil consumption. But, unlike the state-owned companies, teapot refineries have no rights to export their oil products, which means their fortunes are tied to domestic conditions.

"This Platts series looks at some of the challenges the independent sector is facing, including slumping domestic demand, tightening credit and government mandates for consolidation," said Mriganka Jaipuriyar, senior editor for Asia oil news. "A Platts team spent five days touring independent refineries in China's eastern coastal province of Shandong and spoke with executives, plant managers and analysts to bring this exclusive in-depth look at a sector often underestimated domestically and internationally."

Despite numerous hurdles, refiners in Shandong — the location of 80% of the country's small refineries with capacity of 20,000 barrels per day (b/d) to 100,000 b/d — remain confident that their contribution to the province's economy will hold them in good stead, the series says in its first installment, "Challenges Loom for China's Teapots," published Monday at http://www.platts.com/IM.Platts.Content/Downloads/PDFs/PON_20141215.pdf.

Each installment will be published after markets have closed, around 6:30 p.m. ET, via Platts Oilgram News and electronic real-time service Platts Global Alert. Watch for each of the series' installments as follows:

Tuesday, December 16 – The teapots get creative to remain alive: While typically seen as a homogeneous bunch of small refineries with neither government backing nor access to secure feedstock supplies, several teapot refiners have adopted unique tactics to ensure their survival. Platts examines three teapot refiners and their strategies.
Wednesday, December 17 – How one teapot became China's largest independent refiner: If the local government in Shandong had its way, all teapot refiners in the province would emulate Shandong Dongming Petrochemical. According to a policy document released by the provincial government in October, Dongming Petrochemical is listed as the 18th "most developed" refiner in the country, with modern units and sophisticated technology. Platts takes a close look at what makes this refiner successful.
Thursday, December 18 – Independents shift their feedstock from fuel oil to crude: A defining feature of China's teapot refineries has been their use of fuel oil as a feedstock instead of crude. But changing market dynamics and closer ties with state-owned oil companies has seen them using more and more crude oil over the last two years.
Friday, December 19 – Small refiners exploit loopholes in China's massive tax web: China's teapot refineries have used creative means to survive, including taking advantage of loopholes in China's extensive oil products consumption tax system.

Learn more about the special series via this 4-minute video (http://player.piksel.com/p/v44592w5) by Vandana Hari, Platts editorial director for Asia, and Yen Ling Song, who also produces the monthly China oil demand report by Platts, a leading global provider of energy and commodities information.

"One refinery that we spoke with said they managed to reconfigure their entire capacity to produce twice the amount of gasoline as diesel and this is something even the state-owned refiners are unable to do at the moment," said Song when asked about surprising findings. Not only was the refinery "quite prescient," Song said, but it appears it was nimble enough to overhaul its refinery well ahead of the pack, besting peers large and small.

For more information about oil, visit www.platts.com. For Chinese-language information on oil and the energy and metals markets, visit http://www.platts.cn/.

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