In this list
Energy Transition | Oil | Petrochemicals | Shipping

China's efforts to limit oil product exports gain speed in quest for net-zero

Oil | Natural Gas | LNG | Carbon | Emissions | Energy Transition | Electric Power | Coal | Energy | Electricity | Biofuels | Commodities


Shipping | Marine Fuels

Platts Bunkerwire

Biofuels | Renewables | LNG | Natural Gas | Oil | Petrochemicals | Marine Fuels | Tankers | Crude Oil | Refined Products | Bunker Fuel | Gasoline | Jet Fuel

APPEC 2022

Shipping | Energy | Oil | Tankers | Crude Oil | Refined Products

G7, Australia agree on $60/b oil price cap for seaborne Russian crude

Energy | Energy Transition | Emissions | Carbon | Oil | Crude Oil | Refined Products | Metals | Steel

Slow economic growth pressures China to rebalance carbon reduction ambitions

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

China's efforts to limit oil product exports gain speed in quest for net-zero


New gasoline, gasoil, jet fuel quota allocations unlikely until H2

Beijing aims to issue new fuel oil export quotas soon

Refineries will increasingly need to adjust product slates

  • Author
  • Analyst Oceana Zhou    Sambit Mohanty
  • Editor
  • Shashwat Pradhan
  • Commodity
  • Energy Transition Oil Petrochemicals Shipping

China is speeding up efforts to eliminate cargo exports of some transport fuels earlier than the target of 2025 as part of its net-zero ambitions, a move that would increasingly limit the ability of the country's oil companies to influence the global products market, Beijing-based sources with knowledge of the matter told S&P Global Commodity Insights.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

While the strategy is part of efforts to move toward the net-zero target by 2060, sources said Beijing is working toward ensuring that the restricted oil export policy does not affect the supply of bonded bunkering fuel oil and bonded jet fuel for ships and flights going to international destinations, despite these supplies being counted as exports.

In addition, the National Development and Reform Commission, in a recent meeting, is believed to have highlighted the importance of keeping supplies to Macao and Hong Kong intact despite efforts to slow overall oil product exports, sources with state-owned oil companies added.

"Only the cargoes shipped to Hong Kong and Macao will be allowed in the future, in addition to bonded fuel oil or jet fuel bunkering, which are deemed as exports. These targets are possible to achieve by 2023, earlier than the expected target of 2025," one Beijing-based source said.

The Chinese mainland's gasoline, gasoil and jet fuel exports to Hong Kong peaked at 8.89 million mt in 2019, accounting for 16% of China's total exports in the year, but the volume slumped by more than half to 4.13 million mt in 2021, data from China's General Administration of Customs showed. Exports to Macao stood at 423,570 mt in 2019, and dropped to 12,609 mt in 2021, GAC data showed.

This means that Chinese refineries must adjust their product slate to lift fuel oil production, while cutting output of other oil products, a second source said. China currently exports jet fuel both by cargoes and by sending to China's airports for bonding refuels.

China has drawn up a list of high-carbon products from the refining and chemicals industry for which it plans to limit exports, according to the 14th Five Year quality development guidelines for the sector published on April 7.

Policy watchers have said the move is to show China is responding to the global net-zero calls by eliminating dumping high-carbon products in overseas markets while cutting its own emissions.

"But it means China will lose the good opportunity to gain hefty profits from the current overseas market, where the oil products are in short supply as more and more borders completely open up after two years of COVID-19 controls," a Singapore-based analyst said.

Gasoline, gasoil, jet fuel exports

As per the original plan, the government was said to target eliminating cargo exports of transportation fuels by 2025.

As part of efforts to reduce exports, the Ministry of Commerce, or MOFCOM, slashed gasoline, gasoil and jet fuel export quotas by 55.9% year on year to 13 million mt in the first-round allocation to seven oil companies for 2022.

Oil companies have to save quotas as the second batch of allocation is unlikely to come by the end of June.

"That is why Chinese refineries had to cut throughput rather than increase oil product exports when domestic demand dropped amid tight COVID-19 controls in April, while oil product cracks surged in overseas markets," a Hong Kong-based analyst said.

Chinese refineries' utilization rate likely hit a two-year low in April amid the latest wave of COVID-19 resurgence, as state-owned refineries ran at 76.4%, integrated independent refineries at 77%, and Shandong-based private plants at 50.1%, S&P Global reported.

Market sources said gasoline, gasoil and jet fuel exports in April were unlikely to see a notable increase from the average of about 2.4 million mt/month in the first quarter, a fall of 52.7% year on year.

Bonded LSFO bunkering

Bonded bunkering fuel oil exports, on the other hand, are encouraged by the government as the barrels are refueled in offshore China instead of being dumped overseas.

Beijing-based sources said the second batch of fuel oil export quotas would be issued soon, even before the first batch of allocations amounting to 6.5 million mt runs out in May, adding that the total annual quotas for 2022 would be higher than 12 million mt allocated last year.

Beijing is keen to keep allocating fuel oil export quotas to the level which "oil firms can use," the second Beijing-based source said.

While oil product export quotas have been cut, Beijing's first batch allocation of low sulfur fuel oil quotas of 6.5 million mt was 30% higher year on year, allowing quota holders to send tax-free, domestically produced barrels for bonded bunkering at Chinese ports. Exporting domestically produced fuel oil cargoes is not tax-free.

Some state-owned refineries, such as Sinochem's Quanzhou Petrochemical, used to export gasoline, gasoil and jet fuel and seldom produced bunker fuel oil. But they must now change the slate and lift bunker fuel oil production in the future, one source said.