Chinese Teapots Team Up In Refining Conglomerate

The Shandong province in China has approved a request by the largest independent oil refiners—typically known as teapots and most located in the province—to set up a refining conglomerate to boost their coordination amid fierce competition from state refiners.

The Shandong province—home to more than 70 percent of China’s teapots—has authorized the consolidation, Xinhua news agency reports, citing a document issued by the Shandong Economic and Information Technology Committee on Friday.

Major independent refiners, including the largest, Shandong Dongming Petrochemical Group, are the founding shareholders of the new conglomerate. A group representing major teapots in the Shandong province requested to create the conglomerate in July this year.

The teapots have been instrumental for China’s crude oil demand growth during the oil price crisis, but have also undermined the dominance of the state-owned companies.

In June, China allowed a second batch of crude oil import quotas for independent refiners and some state-held companies for 2017, setting full-year quotas at a total of 91.73 million tons, or 1.83 million bpd. 

Earlier in June, a group that represents most of the independent oil refiners in China issued a statement pledging the members’ full compliance with government regulation governing how these independents operate, so that they don’t trigger complaints from the state-owned giants.

Related: Russia’s Comeback In The LNG Race

Earlier this year, China completed the construction of a new pipeline in the Shandong province that has the capacity to ship 608,000 bpd of crude oil from facilities operated by trading house Mercuria at the port of Qingdao to the city of Weifang. The new pipeline was designed to serve major independents, including Shandong Chambroad Petrochemicals Co and Shandong Dongming Petrochemical.

At 10.71 million bpd, China’s crude refineries saw in July their lowest daily throughput rate since September last year as state firms and independent refineries, both swimming in inventory, continued to compete in the abundant fuel market.  

By Tsvetana Paraskova for Oilprice.com

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