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China’s oil products’ exports have historically supported product tanker employment. The good news is that high crude oil import quotas allotted by Beijing, coupled with planned refinery capacity additions this year, signal that Chinese products’ exports will remain elevated and support MR and LR employment in 2018.

Import quotas for 2018

Chinese exports of products reached record highs in 2017 in tandem with surge in its refinery throughput. Indeed, China surpassed the US to become the largest crude importer in 2017. With generous import quotas allocated by Beijing for 2018, crude imports look set to rise and in turn will product exports from China.

In 2017, 21 independent refiners, also known as teapot refiners were allowed to import 474 million barrels of crude oil. In 2018, a total of 837 million barrels of imports have been allotted by Beijing to 34 independent refiners. In addition, five state-owned oil majors are allowed to import crude oil freely as and when required.

Independent refiners, which constitute a third of China’s 15 mbpd refining capacity, play a key role in determining China’s throughput. Beijing often allots more quotas as the year progresses and increased import quotas for 2018 will incentivize teapot refiners to process more crude and export surplus products.

Capacity additions

Refining capacity additions and expansions of about 1.2 mbpd are planned in 2018 by independent refiners. This includes planned additions in 2017 which did not come online.

In 2017, teapot refiners added just 0.15 mbpd of crude distillation capacity, but given lucrative export quotas we believe that project slippages to 2019 will be few.

Surging throughput and exports

Source: Drewry Maritime Research

The increase in China’s refinery throughput has always supported exports of oil products from China.

China’s refinery throughput reached a record high of 12.03 mbpd in November2017. For 2017, Chinese refiners processed an annual record-high 11.3 mbpd of crude oil. This has created surplus availability of products for export.

As per our preliminary data, Chinese seaborne exports for oil products in 2017 were 52 million tonnes, nearly 4 million tonnes higher than 2016, and a staggering 16 million tonnes more than 2015.

Who is buying China’s oil product surplus

Source: Drewry Maritime Research

Conclusion

Surging exports from China have provided employment for MR product tankers for short to medium haul distances within the Asia-Pacific region. In addition, exports of fuel oil and jet fuel have supported long-haul trade to Latin America and US East Coast respectively, providing employment for LR product tankers.