Beijing has decided to allow more independent oil refiners to import oil from abroad hoping to lower domestic fuel prices and improve fuel quality. China has had strict regulations on oil imports in order to guarantee the stability of domestic supplies as state-controlled companies PetroChina and Sinopec account for almost 90 percent of the country’s oil shipments. However, last month, Beijing decided to relax some rules within China’s state-controlled oil sector, thus taking advantage of the global collapse in oil prices.
According to Guo Shuqing, governor of the Shandong province, “this new policy breaks the previous situation that only three to four big companies are allowed to import crude oil”. Shandong is the country’s hub of small refineries while it is also home to a substantial part of China’s refining capacity. The overall capacity of the oil production in the province is about 100 million tons (approximately 2 million barrels a day) although last year it was only 50 million tons. Analysts estimate that this volume accounts for about a fifth of the country’s total.
The small plants are typically supported by local governments or they are privately owned. They have been for years processing a heavy refined fuel that is dirtier than crude oil as they have been denied a direct access to both crude oil and foreign supplies. “It (the policy) may help improve fuel quality, clean up the air and also lower the fuel prices consumers pay,” Mr Guo explained. The new rule now enables refiners with minimum annual capacity of 40,000-bpd to demolish outdated refining facilities and apply for crude oil imports. Mr Guo thinks that Shandong plants could remove as much as 20 million tons of annual capacity. He added as well that local authorities would close down petrol stations that sell fuels of lower quality.