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Hengli Petrochemical, a unit of private Chinese chemical giant Hengli Group, has obtained state approval to import 400,000 bpd of crude oil—the largest quota ever handed to a private Chinese refiner, as it aims to start a new refinery this year, challenging the smaller independent Chinese refiners.
Listed Hengli Petrochemical said in a stock exchange filing that the Chinese state economic planner, the National Development and Reform Commission (NDRC), had approved the import quota.
Hengli Petrochemical has plans to begin this October trial runs at a new refinery on the northeastern port city of Dalian, a facility which will be one of the five biggest Chinese refineries.
“We hope to get enough allowances for the refinery to start trial operations in October,” a senior Hengli official told Reuters on the condition of anonymity.
The Dalian refinery’s two crude distillation units (CDU) are designed to process 30 percent of Saudi Arabia’s Arab Medium crude, 60 percent of Saudi Heavy, and 10 percent Qatar Marine, according to the official.
“Hengli’s world-class scale, sophisticated refinery configuration that favors high-end petrochemicals and its location means it will be a killer competitor to teapots,” Harry Liu of consultancy IHS Markit told Reuters.
The new big refinery will be stiff competition for the small independent refiners—known as ‘teapots’—that typically operate refineries with capacities of below 100,000 bpd.
Related: Is Saudi Arabia Losing Its Asian Oil Market Share?
Liu expects that some of the teapots could close over the next two years as a result of the competition from the larger refineries of private chemical groups.
According to Reuters, Zhejiang Ronsheng Group, another privately held chemical company, is set to start up a newly built 400,000-bpd refinery in the eastern city of Zhoushan in 2018.
In January this year, Hengli Petrochemical and a subsidiary of state-run Sinochem Group signed a cooperation agreement for the production, supply, and marketing of oil products.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.