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PetroChina, Hengli win 4.43 mil barrels of state crude reserves in China's first set of auctions

Энергия | Energy Transition

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PetroChina, Hengli win 4.43 mil barrels of state crude reserves in China's first set of auctions

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Deals done at far below spot prices

Murban unsold due to high deposit

State-run PetroChina and privately-held Hengli Petrochemical (Dalian) Refinery were awarded 4.43 million barrels of crudes in China's first set of planned auctions from state crude reserves, sources from both companies told S&P Global Platts Sept. 24.

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The market had expected PetroChina and Hengli to be winners as they are located next to the state crude reserves sites in Dalian, Liaoning province, Platts reported on Sept. 17.

PetroChina Dalian won 951,137 barrels of Qatar Marine and 1.1 million barrels of Forties, each cargo priced at $65/b.

In comparison, Platts assessed Qatar Marine CFR North Asia at $74.78/b on Sept. 23, and Forties CFR North Asia at $78.18/b.

Both cargoes of the state crude reserves are stored in Dalian Xingang storage sites, which connects PetroChina Dalian with pipelines.

Oman, Upper Zakum

Hengli took 1.79 million barrels of Oman at $65/b and 592,031 barrels of Upper Zakum at $70.50/b.

The prices are lower than the spot CFR North Asia prices of $75.18/b for Oman and $75.11/b for Upper Zakum on Sept. 23, Platts' data showed.

Hengli is located in Changxing Island and has pipelines to connect the storage sites for the barrels in the same island.

"Prices at below $73/b are affordable," a source with Hengli said and added the notional prices for the cargoes of state crude reserves were $65/b.

Participants said the auction for the Upper Zakum barrels were intensive as the price was raised 11 times, each by 50 cents/b, before concluding the deal at $70.50/b.

PetroChina Dalian was a strong competitor as Upper Zakum is one of its favorable crude in addition to ESPO.

Murban

However, the 2.95 million barrels of Murban crude failed to attract any bids, which are stored in the Changxing Island site.

"The cargo of Murban is bigger than any other cargoes, requiring more cash to conclude the deal," an auction participant told Platts.

All participants needed to pay a Yuan 40/b ($6.19/b) of refundable deposit by 17:00 Beijing Time Sept. 22, according to the auction rules published by China's National Food and Strategic Reserves Administration, or NFSRA, on Sept. 14.

This suggested bidders for Murban were required to prepare around Yuan 118 million ($18.25 million) cash in a week and make the rest of the payment in as long as 12 working days after winning the auction on Sept. 24, the participant said.

Murban CFR North Asia was assessed at $75.9/b on Sept. 23, Platts data showed.

Zhoushan next?

Refiners expect NFSRA to host the next set of auctions for state reserve crude soon. The most likely option is expected to be barrels stored in Zhoushan site, Zhejiang province, according to market sources.

The site in Zhoushan is able to serve China's refining hub in the Yangtze River delta, with pipelines to connect several Sinopec refineries, including the flagship Zhenhai Petrochemical and Refining, and the private mega-refinery Zhejiang Petroleum & Chemical.

Around 9 million barrels of reserve crude have been stored in the Zhoushan sites, including 1 million barrels stored in commercial tanks. But most of the barrels in Zhoushan were put into storage before 2018, or even in 2010, suggesting the historical cost of the barrels to be higher than those stored in Dalian since April 2020.

Aimed to ease rising feedstock pressure on the refining industry, NFSRA announced in early September that it would conduct the country's first sets of crude reserve auctions, following the same for copper, aluminum and zinc.

The country holds around 900 million barrels of crude stocks in state reserves and commercial tanks after hefty stockpiling in 2020, when crude prices slumped, market sources said.

The administration offered 7.38 million barrels state crude reserves for the auctions on Sept. 24, which is the first set auctions.

In comparison, China imported 10.45 million b/d of crude in January-August and crude throughput averaged at 14.2 million b/d in the same period, the country's official data showed.

China's first set of state crude reserve auctions on Sept. 24

Lot
Grade
Winner
Price ($/b)
Vol (barrels)
Storage location
In storage since
1
Qatar Marine
PetroChina
65
951,137
Dalian Xingang
April 2020
2
Forties
PetroChina
65
1,095,565
Dalian Xingang
Aug. 2020
3
Oman
Hengli
65
1,790,957
Changxing Island
April 2020
5
Upper Zakum
Hengli
70.50
592,031
Changxing Island
May 2020
4
Murban
No deal
No deal
2,953,927
Changxing Island
2,086,951 barrels in April 2020
866,976 barrels in May 2020

Source: National Food and Strategic Reserves Administration, companies sources