China’s limited increase in oil product export quota aimed at curbing Q4 outflows

China’s limited increase in gasoline, gasoil and jet fuel export volumes for major domestic oil companies confirms a decline in outflows of these key oil products for the rest of the year, as the world’s second-largest economy looks to reduce carbon emissions and ensure domestic supplies, several analysts and refining sources told S&P Global Platts.

China’s Ministry of Commerce on Nov. 10 approved Sinochem and Zhejiang Petroleum & Chemical, or ZPC — two of the major fuel oil export quota holders — to transfer 230,000 mt and 380,000 mt, respectively, of their bunker fuel oil export quota to export gasoline, gasoil and jet fuel in the rest of the year, Platts reported.

“The move makes it crystal clear that the government is determined to lower carbon emission and ensure domestic supply by capping oil product outflow from 2021 onward, and no more extra export quota to be allocate this year,” a Beijing-based analyst said.

The quota transfer limit was in line with market expectations but total export quotas for gasoline, gasoil and jet fuel in 2021 were below last year’s levels.

With the transfer, the volume of gasoline, gasoil and jet fuel export quotas amounts to 37.61 million mt for 2021, slumping 36.3% from 59.03 million mt allocated for 2020.

The country exported 33.70 million mt of these three key products in January-September, data from General Administration of Customs showed, suggesting just about 4 million mt of quota available for Q4.

Sinopec, PetroChina save quotas
“The remaining quotas are more or less enough for rest of the year, as we skip gasoil exports in November to guarantee domestic supply,” a source with an exporting Sinopec refinery in eastern China said.

State-run oil giants Sinopec and PetroChina announced end-October that they will adjust their gasoil export plans and boost output of the barrels in November to ease the recent supply shortage in the domestic market. All the refining sources within the companies told Platts that they will suspend gasoil exports this month, thereby helping save quota.

But the outflow of the middle distillate will resume in December when supply rebounds while demand from transportation sector slows down after Nov. 11 cyber shopping festival and as snows in northern part of China curb demand from construction sector.

S&P Global Platts Analytics estimated on Nov. 5 that China’s gasoil exports will drop to 92,000 b/d in Q4 from 220,000 b/d in Q3 and 452,000 b/d from the same period a year ago.

Therefore, neither Sinopec nor PetroChina applied to transfer fuel oil quotas which are also in short, instead they gain additional 580,000 mt and 330,000 mt of fuel oil quota, respectively, in this round of quota adjustment/allocation.

Even with the additional allocation, PetroChina’s quota amounts to 3.38 million mt for 2021, which remains less than its typical bunker fuel oil production of about 3.6 million mt/year for using the quotas for bonded bunkering at China’s ports.

ZPC to increase gasoline exports
ZPC is set to use the quotas transferred from fuel oil to raise gasoline export, a company source told Platts.

The private integrated complex will increase light-end output in rest of the year in order to maximize usage of its newly 12 million mt of crude import quota issued on Oct. 25 by lifting utilization rate from 70% in October.

China’s domestic demand for gasoline slowed down due to the recent spike in COVID-19 cases amid the government’s zero-tolerance controls, leaving more barrels available to export.

But due to limited quota, Platts Analytics expects the country’s gasoline exports to fall to 145,000 b/d in Q4 from 207,000 b/d in Q3 and 428,000 b/d in Q4 2020.

On Nov. 10, the commerce ministry also approved PetroChina, Sinopec and Sinochem to transfer their key oil products export quotas, totaling 969,000 mt, from the processing trade route to the general trade route.

Jet fuel cargo exports to rise
In China, most of the quotas allocated under processing trade route are for exporting jet fuel to China’s international airports to refill the airplane plying international voyage.

The transfer between the trade route is evident of the weak demand for international flights departing from China due to the COVID-19 reemergence.

“China’s jet fuel is under pressure, which needs to be offset by sending out more cargoes to overseas where demand is recovering,” a Singapore-based trader said.

The country is estimated to export 167,000 b/d of jet fuel in Q4, rising 49% year on year but down from 208,000 b/d in Q3, according to Platts Analytics.

Sinochem’s key oil product export quotas under the processing trade route were allocated to the 15 million mt/year Quanzhou Petrochemical refinery that it built.

With the transfer to the general trade route, the state-owned oil company will be able to fully use the quotas by sourcing from ChemChina refineries that it merged this year, as Quanzhou Petrochemical will be shut for scheduled maintenance around end-November into early December, a company source said.
Source: Platts