Refined Oil Reform in China (Zhejiang) Pilot Free Trade Zone
In December 2019, China’s State Council issued Opinions on Creating a Better Environment to Support the Reform and Development of Private Enterprises, and according to the document, China would encourage private enterprises to participate in oil and gas exploration, processing and sales, build crude oil, natural gas and refined oil storage and transportation facilities. China would also promote qualified private enterprises to participate in crude oil imports and refined oil exports, giving strong support to private enterprises’ development in oil refining industry.
Recently, China’s State Council issued Reply to Several Measures to Support the Development of Oil and Gas Industry Chain in China (Zhejiang) Pilot Free Trade Zone. The document clearly stated that China will moderately support the refined oil exports in China (Zhejiang) Pilot Free Trade Zone and allow qualified refining and chemical integrated enterprises in the trade zone to conduct trial refined oil (produced by their own) non-state export trade. The government will issue moderate annual export quotas.
Currently, China’s oil refining industry suffers from oversupply, and refined oil export is an effect method to relieve the oversupply. In the last three years, no private enterprises ever gained refined oil export quotas, and Sinopec, PetroChina and CNOOC were the major exporters of China’s refined oil. However, with the rapid development of private refining and chemical integrated enterprises, they become increasingly desired for refined oil export quotas, and SCI reckons that Zhejiang Petrochemical may become the first private enterprise to gain refined oil export quotas.
China (Zhejiang) Pilot Free Trade Zone plays an important role in the further development of oil refining industry’s supply-side reform. It is possible that Hengli Petrochemical, Shandong independent refineries, etc. will gain refined oil export quotas in the future. Hengli Petrochemical and Sinochem have jointly established Hengli Oilchem in Singapore which is responsible for Hengli Petrochemical’s crude oil imports, oil refining product sales, crude oil and refined oil transit trade, etc. Moreover, China has issued policies about further marketizing refined oil pricing mechanism, cancelling refined oil refined oil wholesale and storage qualification approval, etc. before, strongly boosting the development of oil refining industry in China. SCI reckons that in the future, both China’s crude oil import volume and refined oil export volume will stay at high levels for a certain period.
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