Chinese Teapot Refineries Are Going Belly Up

Numbers Report – February 21, 2025

In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. US LNG Exports Soar to Record Highs, Easing Global Price Pressures

- US liquefied natural gas exports are set to finish February with another top performance above 8 million tonnes, potentially paving the way for March seeing the highest pace of exports on record.
- Pipeline flows to LNG export plants across the US climbed to 15.7 bcf/day on Tuesday, almost 20% more than a year ago, thanks to a ramp-up in operations at Venture Global’s Plaquemines LNG plant as well as Cheniere’s Corpus Christi project.
- The US LNG bonanza helped lower European gas prices as the March-delivery TTF contract dropped back to $14.8 per mmBtu and Asia’s LNG benchmark JKM trended even lower, just a tad above $14 per mmBtu.
- Sabine Pass LNG accounts for 33% of all US LNG exports, with the second tier of exporters coming from Cameron LNG, Corpus Christi LNG and Freeport, each taking up roughly 15% of the country’s LNG outflows.

2. Chinese Teapots Shutting Refineries as Beijing Cranks Up Pressure

- China’s famed Shandong teapots, the independent refiners in Northeast China that have been dealing with the double whammy of sanctions fallout and government pressure, are increasingly prompted to shut refining capacity.
- Since January, Beijing allows teapots to offset just 40% to 80% of their consumption tax on fuel oil imports, raising import costs by $2 per barrel and limiting access to a crucial feedstock for refiners without import quotas.
- According to Chinese industry reports, of the 49 independent refineries in Shandong currently only 27 are operational because they have access to domestic crude production, whilst the rest has been idling.
- Alternative feedstocks such as the so-called ‘bitumen blend’ (Venezuelan Merey crude disguised as a heavy oil product) are becoming less efficient to refine due to even lower tax rebates from Beijing, with pricing remaining stable around $5-6 per barrel discounts vs ICE Brent.

3. Nigeria’s Dangote Effect Finally Comes to Fruition

- The single largest downstream addition globally last year, Nigeria’s 650,000 b/d Dangote refinery is making notable progress in meeting the African country’s unsatiated gasoline demand and currently covers as much as 60% of the domestic market.
- Dangote began operating its fluid catalytic converter (FCC), a key unit for producing gasoline, back in September and is expected to reach full capacity of 205,000 b/d by mid-March.
- The state oil firm NNPC has also taken steps to meet Nigeria’s 350,000 b/d gasoline consumption, restarting its Warri and Port Harcourt refineries, however it is still questionable whether the two NNPC plants produce any on-spec gasoline.
- As recently as 2022, Nigeria imported some 400,000 b/d of gasoline as it had no operational refinery at that time, however since the launch of Dangote Nigeria’s government has ditched most of its fuel subsidies.

4. Cargill Eyes Maritime Fuel Expansion

- Cargill, the world’s largest privately owned commodities trader, has joined forces with the Singapore-based shipping firm Hafnia to form a new maritime bunker fuel supplier, combining their assets.
- The joint venture, called Seascale Energy, will be handling some 7.5-8 million tonnes of marine fuel, potentially boosting Cargill’s exposure to shipping in a market that consumes up to 1 billion tonnes of fuel annually.
- Prices of very low sulphur fuel oil (VLSFO) have been $75-100 per metric tonne lower than a year ago, with the Northwest European market decoupling from US and Middle Eastern prices because of weaker demand.
- Over the past six months, the premium of VLSFO to HSFO has averaged below $100 per metric tonne, with additional volumes of low-sulphur residue from Kuwait flooding the Asian markets and sending a ripple effect to other regions.

5. Suriname Becomes the New Star of South American Drilling

- Guyana’s surge to prominence will continue this year with the commissioning of the 250,000 b/d One Guyana FPSO, however oil drillers are increasingly focusing on oil reserves across the maritime border in Suriname.
- According to Rystad Energy, capital investments into Suriname’s upstream segment will reach $9.5 billion in 2025-2027, largely coming from the 200,000 b/d Gran Morgu project that is set for first oil in 2028.
- With recoverable reserves of 2.2 billion boe currently, Suriname will most probably see a huge uplift in discovered volumes this year as Shell is preparing for a four-well exploration programme, joined by TotalEnergies and Chevron.
- Over the past five years, only Namibia has seen more discoveries than Suriname and in stark contrast to the African country, higher gas content does not seem to be a hindrance to further drilling with some gas reserves believed to be as high as 12.5 TCf.

6. China’s Saturated Coal Market Spells Trouble for Global Prices

- This week has seen Glencore posting a slide in 2024 annual profits to 14.4 billion, some 15% lower year-over-year, and the topic of weak coal prices stood front and centre – to the extent that Glencore mulled supply cuts in view of weak Chinese buying.
- As winter is gradually coming to an end, demand for thermal coal is set to ease whilst domestic coal output continues to grow by 4% annually, depressing prices in Northeast China to a four-year low of ¥740 per metric tonne ($100/mt).
- With the prompt March futures contract of Australia’s benchmark Newcastle coal falling to $106/mt, roughly equivalent to China’s domestic prices, not even coal imports could stave off a further decline in prices, below long-term contract levels.
- Beijing posted a second consecutive month of no growth in home prices, underscoring the problems of the country’s property sector, with weak steel demand concurrently depressing coking coal prices, too.

7. Is US Diesel Demand As Good As It Seems?

- US inventories of distillate fuels, combining diesel and heating oil, dropped to their lowest for this time of the year since 2014, falling by 12 million barrels since the beginning of 2025 to 116.6 million barrels in the week to February 14.
- This would normally suggest that diesel consumption is relatively healthy across the States, however much of this decline was triggered by abnormally cold weather this winter, with January temperatures 10% below last year’s average and 5% below the long-term historical average.
- Diesel consumption per se continues to be hindered by weaker trucking demand (with December posting a 12-month low), stagnation in the steel industries and increasing competition from renewable diesel production in PADD 5.
- Distillate demand in the US declined by 70,000 b/d last year, averaging 4.1 million b/d, marking the second consecutive year of declines.

That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.