China's Independent Oil Refineries: An Inside Look - Surviving Amid Mounting Challenges

SINGAPORE, Dec. 16, 2014 /PRNewswire/ -- Independent oil refiners in eastern China, responsible for some 30% of the nation's refining capacity, are confident of survival despite major headwinds, according to a just-released installment of a 5-part series looking at the capabilities and strategies of the nation's so-called  "teapot" or "tea kettle" oil refineries.  Platts' special "inside" view reveals how these small-scale entities are surviving and dispelling perceptions the sector is "inefficient" and/or "unsophisticated."

Like their state-owned peers, teapot refineries' production is mostly gasoil and gasoline, the majority of China's total oil consumption. But, unlike the state-owned companies, teapot refineries have no rights to export their oil products, which means their fortunes are tied to domestic conditions.

"This Platts series looks at some of the challenges the independent sector is facing, including slumping domestic demand, tightening credit and government mandates for consolidation," said Mriganka Jaipuriyar, senior editor for Asia oil news. "A Platts team spent five days touring independent refineries in China's eastern coastal province of Shandong and spoke with executives, plant managers and analysts to bring this exclusive in-depth look at a sector often underestimated domestically and internationally."

Despite numerous hurdles, refiners in Shandong — the location of 80% of the country's small refineries with capacity of 20,000 barrels per day (b/d) to 100,000 b/d — remain confident that their contribution to the province's economy will hold them in good stead, the series says in its first installment, "Challenges Loom for China's Teapots," published Monday at http://www.platts.com/IM.Platts.Content/Downloads/PDFs/PON_20141215.pdf.

Each installment will be published after markets have closed, around 6:30 p.m. ET, via Platts Oilgram News and electronic real-time service Platts Global Alert. Watch for each of the series' installments as follows:

• Tuesday, December 16 – The teapots get creative to remain alive:  While typically seen as a homogeneous bunch of small refineries with neither government backing nor access to secure feedstock supplies, several teapot refiners have adopted unique tactics to ensure their survival. Platts examines three teapot refiners and their strategies.
  
• Wednesday, December 17 – How one teapot became China's largest independent refiner:  If the local government in Shandong had its way, all teapot refiners in the province would emulate Shandong Dongming Petrochemical.  According to a policy document released by the provincial government in October, Dongming Petrochemical is listed as the 18th "most developed" refiner in the country, with modern units and sophisticated technology. Platts takes a close look at what makes this refiner successful.
  
• Thursday, December 18 – Independents shift their feedstock from fuel oil to crude: A defining feature of China's teapot refineries has been their use of fuel oil as a feedstock instead of crude. But changing market dynamics and closer ties with state-owned oil companies has seen them using more and more crude oil over the last two years.
  
• Friday, December 19 – Small refiners exploit loopholes in China's massive tax web: China's teapot refineries have used creative means to survive, including taking advantage of loopholes in China's extensive oil products consumption tax system.

Learn more about the special series via this 4-minute video (http://player.piksel.com/p/v44592w5) by Vandana Hari, Platts editorial director for Asia, and Yen Ling Song, who also produces the monthly China oil demand report by Platts, a leading global provider of energy and commodities information. 

"One refinery that we spoke with said they managed to reconfigure their entire capacity to produce twice the amount of gasoline as diesel and this is something even the state-owned refiners are unable to do at the moment," said Song when asked about surprising findings. Not only was the refinery "quite prescient," Song said, but it appears it was nimble enough to overhaul its refinery well ahead of the pack, besting peers large and small.

For more information about oil, visit www.platts.com. For Chinese-language information on oil and the energy and metals markets, visit http://www.platts.cn/.

About Platts: Founded in 1909, Platts is a leading global provider of energy, petrochemicals, metals and agriculture information and a premier source of benchmark prices for the physical and futures markets.  Platts' news, pricing, analytics, commentary and conferences help customers make better-informed trading and business decisions and help the markets operate with greater transparency and efficiency.  Customers in more than 150 countries benefit from Platts' coverage of the biofuels, carbon emissions, coal, electricity, oil, natural gas, metals, nuclear power, petrochemical, shipping and sugar markets.  A division of McGraw Hill Financial (NYSE: MHFI), Platts is based in London with more than 1000 employees in more than 15 offices worldwide. Additional information is available at http://www.platts.com.

About McGraw Hill Financial: McGraw Hill Financial (NYSE: MHFI) is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include: Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL and J.D. Power. The Company has approximately 17,000 employees in 30 countries. Additional information is available at www.mhfi.com.

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