Tanker Insights - Chinese Teapot Refineries and the Congestion of Choice - Teekay

May 9, 2016

Liberation of teapot refiners positive for crude tanker demand

China recently granted licenses to eleven independent Chinese refineries, known as teapots, permitting them to import crude from global markets. Prior to the licenses being granted, only the major state-owned oil companies were permitted to import crude oil, and teapot refineries had to either reprocess fuel oil or source their crudes from the state. With the newly granted licenses, these select refiners have turned to some of the world’s largest crude exporters as they seek to improve their margins. Such moves into the global marketplace are very positive for crude tanker demand. The lion’s share of these teapot refineries are in Shangdong province, and Qingdao is the key import terminal in the region. The increase in seaborne imports into Qingdao has been profound as cargos from all over the globe have been arriving at the port, causing long lines of tankers waiting to discharge. Volumes of crude oil arriving at Qingdao have risen by ~80% year-on-year, to 2.1 mb/d by the end of April, compared to 1.1 mb/d in April 2015.

Qingdao: Seaborne Imports

Qingdao: Port Congestion

As of May 3rd, a total of 22 tankers are waiting to unload at Qingdao, including 10 VLCCs, 4 Suezmaxes, and 8 Aframaxes. This is a 70% increase in congestion from the beginning of March 2016. Such delays are positive for tanker demand because they tie up vessels and tighten tonnage lists. While fluctuating oil prices are likely to impact the relative thirst for crude that these teapot refiners may have going forward, a trend could be developing where major exporters begin courting this new demand source. Last month Shangdong Chambroad Petrochemicals Co bought a spot cargo directly from Saudi Arabia, making them the first teapot refiner to trade on the Dubai Mercantile Exchange. Typically, Saudi Arabia only works on long term contracts and avoids spot cargos, however as the nature of the crude markets change, the ways in which cargos are bought and sold also are beginning to change. The upside to such change is the potential for chartering volatility as changing supply and demand regions provide intermittent, and at times difficult to predict, vessel requirements.

Tanker Insights – Chinese Teapot Refineries and the Congestion of Choice

Liberation of teapot refiners positive for crude tanker demand