China’s independent refiners will not be regulated out of existence in 2017, contrary to speculation in some press reports. As the resilient teapots raise runs, China’s state-owned refiners will continue adding capacity, pushing Chinese refinery throughput to record highs. This will reinforce China’s diesel glut, and keep pressure on regional diesel spreads to crude.

As ESAI Energy’s newly published China Watch explains, Chinese throughput will grow by nearly 500,000 b/d in 2017, from 10.7 to 11.2 million b/d. The teapots will account for roughly half of this increase. The other half will come from state refiners, who will add more than 500,000 b/d of refining capacity in the second half of the year. Chinese diesel exports will stay above 300,000 b/d in 2017.
“China’s government will continue to accommodate the independent refiners for their ability to deliver cheap fuel to domestic markets,” says Amrit Naresh at ESAI Energy. “Product from the teapots will displace product from the state refiners, whose new refineries in Yunnan, Hebei, and Guangdong provinces will push crude processing higher and reinforce China’s oversupply of middle distillates.”
Source: ESAI Energy