- China imported 16.44 million mt of fuel oil in 2018 from which 56% came from Singapore and Malaysia.
- Sinopec’s Jinling Petrochemical was the only known refinery that has invested in capacity increase specifically for LSFO production, at 177,600 mt/year.
- Currently, domestically-produced fuel oil attracts a consumption tax of Yuan 1,218/mt ($176.18/mt).
- It also attracts a 13% value-added tax when the barrels are sold into bonded bunker ports, making it impossible to compete with tax-free imported fuel oil.
According to an article published in Platts, China’s top four state-owned refiners plan to boost their combined low sulfur fuel oil production capacity to 18.15 million mt/year in 2020.
Chinese refiners to supply LSFO
The higher production capacity would allow Chinese refiners to supply LSFO into China’s bonded bunker fuel market, and could potentially flip China from a net bunker fuel oil importer to a net exporter if Beijing announces a highly anticipated tax rebate scheme for overseas sales.
State-run Sinochem plans to have 550,000 mt/year LSFO production capacity at its 12 million mt/year Quanzhou Petrochemical by 2020 to meet low sulfur bunker demand for the tighter IMO 2020 emission standards, a Beijing-based source said.
“Sinochem’s Quanzhou Petrochemical has been preparing to produce LSFO and invested in pipelines and storage for the new business,“ the source added.
1 million mt/year LSFO production capacity in 2021
The company aims to have 1 million mt/year LSFO production capacity in 2021, and eventually raise the capacity to around 2 million mt/year in the future as the plant expands its primary capacity at the same time.
Elsewhere, CNOOC’s LSFO production capacity would reach 3.6 million mt/year in 2020, from about 1.7 million mt/year this year, a second source said. On top of Sinopec and PetroChina’s previously announced 10 million mt/year and 4 million mt/year LSFO capacity, respectively, China’s top four state-owned refiners would have a combined total of 18.15 million mt/year LSFO production capacity in 2020, according to Platts calculation.
Export potential
China’s bunker fuel demand currently stands at around 12 million mt/year, and around 90% of this is met through imports into China’s bonded zones, which are exempt from taxes, and can be only be used to supply ships on international routes, Sinopec’s executives estimated previously.
However, China may no longer rely on imports going forward. The big four refiners could fully meet the country’s domestic bonded bunker fuel oil demand, or even hold surplus barrels that may be sold to the international market if the state-run companies run their LSFO production capacities at 100%.
However, the actual production will depend on refining economics, the sources added.
Limited investments
“The refiners have limited investment in their refining units, which means they need to sacrifice output yield for other products. These products would be more value-added items like gasoil,“ the Beijing-based source said.
Meanwhile, the producers are eagerly waiting for Beijing to announce tax rebates on the supply of domestically-produced LSFO to bonded bunker fuel ports.
Sources and officials at the state-owned companies said they expect the tax rebate policy to be released as early as next month.
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Source: Platts
