CHINA'S NDRC ISSUES NEW NOTICE ON CRUDE OIL IMPORTS

CHINA'S NDRC ISSUES NEW NOTICE ON CRUDE OIL IMPORTS

Currently, authorised private sector importers of crude oil hold quota licenses that restrict where and how much fuel they may bring into China per year. The total permissible import quantity of each refinery is calculated by their operating efficiency and storage capacity. 


However, some quota holders have engaged in trading activities wherein they might import product in order to resell to other users or to store in tanks for future use. Buyers of resold crude are typically smaller refineries that may have outdated, inefficient, or even condemned facilities that are being operated illegally. Such behaviour has been much more prevalent during the global COVID19 pandemic, and not only distorts the domestic supply of refined products, but also raises prices for consumers.

  

According to released documents, the May 27 notice directs China’s Big Five oil companies to improve their self-inspection regarding use of oil in order to decrease the amount of speculative or trading activity being done by smaller quota holders. It clarified that resale activity to non-approved refineries is to be halted due to their inefficient, outdated, or unclean production facilities. Failure to adhere with these and other guidelines will result in fines, license revocations, and even blacklisting. Other punishable activities include: 1) Failing to eliminate outdated installations; 2) Failing to build new and additional storage facilities; 3) Building new facilities without prior authorisation, and; 4) Selling crude oil without authorisation.


The NRDC also established a special working group in April 2021 to inspect the activities of 55 local refineries and investigate whether or not they have lied about their refining capacities on the quota license application. Traders can expect to see the number of quota holders to drop even as the total amount of non-state imports continues to grow drastically. Doing so will increase raw material supply to those quota holders with larger, more efficient, and more diversified refining operations, and may help alleviate the oversupply and shortage conditions in the domestic refined fuel market. 


The total import capacity for all non-state quota holders grew by 20 percent in 2021 from 202 million tonnes (2019) to 243 million tonnes this year. 

About the author(s)

Lawrence Slade is CEO of the London-based Global Infrastructure Investor Association, or GIIA.

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