Philippine Coast Guard Tells Vessels To Ignore The Chinese Militia
by Karen Lema (Reuters) – The Philippines has rejected an annual summer fishing ban imposed by China in the disputed South China Sea and encouraged its boats to keep fishing...
By Roslan Khasawneh and Muyu Xu SINGAPORE, Jan 23 (Reuters) – Chinese oil refiners are unlikely to boost their output of cleaner marine fuels until at least the second quarter of 2020 because they will need to upgrade their facilities, even after the government granted tax waivers to boost output.
The supply lag will mean China will not be able to help relieve a regional shortage of very low sulphur fuel oil (VLSFO), a marine fuel with a maximum of 0.5% sulphur. Demand for the cleaner fuel has surged with the start of new global shipping rules this year mandating the lower sulphur amount or the use of devices that clean ship’s emissions.
China’s refiners will have to adjust their production plans and feedstock crudes as well as install the necessary infrastructure to boost their VLSFO output, said three traders and analysts from FGE.
“It’s not so much a matter of whether they can physically produce it, they need to invest in the infrastructure to do so,” said a senior Singapore-based fuel oil trader.
An official at a Sinopec refinery said it would take more than three months to add new facilities and adjust the refinery’s production and logistics plans to produce VLSFO.
“We do have residue hydrodesulphurization equipment at our refinery, but we don’t have enough supporting facilities such as pipelines and oil tanks,” he said, referring to units that remove sulphur from fuel oil.
China currently imports most of its marine fuels from regional suppliers including Singapore and South Korea. The country plans to waive consumption taxes and give rebates on value-added taxes on fuel oil sales to encourage domestic production its bonded bunker market.
Refineries are currently producing a small amount of VLSFO to test the market, said Wang Zhao, a senior analyst at Sublime Info Corp, a Shandong-based energy consultancy.
Sinopec and China National Petroleum Corp (CNPC) together have pledged they can produce about 14 million tonnes per year of VLSFO while other Chinese refiners could add at least 4 million tonnes.
The Chinese tax changes will not help fill Asia’s supply gap anytime soon as Beijing is limiting wholesale VLSFO exports to develop the domestic bunker, or ship fuelling, industry.
“Exports to other countries will still incur hefty taxes, making economics unfavourable,” said FGE.
State refiners have applied for quotas to export fuel to bonded storage sites, areas that are not subject to customs duties, of up to 24 million tonnes, said three trade sources.
“Those quotas are for bunkers only, it does not apply to cargo exports,” said one of the sources, who has direct knowledge of the matter.
Expanding China’s ability to satisfy its own demand would ease the burden on regional suppliers.
China typically imports about 1 million tonnes of marine fuel oil per month from Singapore.
China’s bonded bunker market supplies about 12 million tonnes of bunker a year, in comparison to Singapore, the world’s largest bunker market, which supplied 47.5 million tonnes in 2019.
(Reporting by Roslan Khasawneh and Aizhu Chen in Singapore and Xu Muyu in Beijing; Editing by Florence Tan and Tom Hogue)
(c) Copyright Thomson Reuters 2019.
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