HONG KONG: A new market trend is emerging in the tanker market, as new “players” are joining the demand side. So called “teapot” or “tea kettle” is the collective term for Chinese independent refiners. As shipbroker Charles R. Weber explains in its latest weekly report, “teapots mainly generate gasoline and gasoil/diesel. China’s teapot refineries have a total oil‐ processing capacity of almost 220Mta, or about 4.4Mnbd, which is equivalent to 30% of Chinese total refinery capacity (14Mnbd). While they have no rights to export their refined product output, changes have been made allowing some of them to import their own crude”.
According to CR Weber, “teapots have been regarded as second‐class operations dependent on state petrochemical companies for their feedstock, which typically includes fuel oil and bitumen blend crude oil. As of September 2015, the landscape has started to change with seven refiners granted crude oil import licenses, which will allow them unfettered access to internationally traded crudes – thus potentially reducing costs and raising quality. The driver of this change in policy – which has been rapidly introduced ‐ has been – in part – to widen access to the glut of cheap international crude oil that is currently available. It may also be seen as part of China’s wider policy to reduce the power of large state controlled companies and invigorate the private sector”.
As such, the shipbroker attempted to explain the potential impact on Chinese crude oil market of new teapot refiner import licenses:
It is thought that one impact of the new licenses will be to possibly limit the use of imported bitumen blend crudes, which have been a staple of teapot refiners, from countries like Venezuela. If this is the case, state petrochemical might be forced to find other markets for its bitumen blend overseas imports.
Demand for domestic crude oil may also be hit with importers preferring to import international crudes. State controlled China National Offshore Oil Co (CNOOC) has been marketing around 300Kbd of offshore crude to teapot refiners. CNOOC itself acknowledges there are few alternative outlets for its offshore crude — exporting does not make sense as the government slaps a tax on outflows. As it stands, Chinese offshore crude is now highly attractive to teapot refiners as some grades are lighter and sweeter compared with onshore crudes. Delivery is almost immediate while volumes can be procured in smaller parcels — compared with VLCCs for imported crude — which poses less of a credit strain on the refiners.
Chinese demand for light, sweet crude may increase. The raft of new independent teapot refiners may look to improve the quality of their feedstock by seeking to secure lighter and sweeter crudes like those from West Africa – certainly, market reports suggest a recovery in West African exports of crude to China in November. However, this may also be a function of China’s current policy of stockpiling crude oil while oil prices are low”, CR Weber concluded.
