Chinese private oil refiners are too powerful for Beijing

In a dramatic turnaround, Beijing announced huge cuts in import quotas for the country’s private oil refiners. According to Reuters, independent Chinese refiners have been awarded a total of 35.24 million tonnes of crude oil import quota in the second batch of quotas this year, a reduction of 35% from 53.88 million tonnes for a similar tranche a year ago. The big reduction took place as part of a government repression on Chinese private refiners known as teapots, which have become increasingly dominant over the past five years. This is intended to allow Beijing to more precisely regulate the flow of foreign oil, as it multiplies embezzlement such as tax evasion, fuel smuggling, and violations of environmental and emissions rules by independent refiners.

The move also aims to regain control of China’s crude refining industry, from private refiners to state-owned refineries. And it is reminiscent of his earlier crackdown on big tech operations that were becoming dangerously powerful and seen as a threat to party politics.

Chinese teapots have continued to gain market share from well-established state actors such as China Petroleum and Chemical Corporation (NYSE: SNP), also known as Sinopec, and PetroChina Co. (NYSE: PTR) since Beijing partially liberalized its oil industry in 2015. Teapots currently control nearly 30% of crude refining volumes in China, up from around 10% in 2013.

Source: Bloomberg

National oil companies will benefit

A total of 39 companies, led by the largest private refiners Zhejiang Petrochemical Company (ZPC), Petrochemical Hengli, and Shandong Dongming Petrochemical Group– will receive quotas for the second batch of this year, ZPC and Hengli each receiving quotas of 3 million tonnes each.

At least four refiners who received allowances in the first tranche were denied all allowances in the last round of emissions.

The press office of China’s Ministry of Commerce declined to comment on its motives for the latest investigation, but the teapots have long been accused of violating tax rules and also lagged behind their state-owned peers. to meet more stringent emissions targets.

Most importantly, National Oil Companies (NOCs) are expected to emerge as the biggest winners thanks to stricter emission standards and growing climate activism as we reported here.

According to SIA Energy analyst Seng Yick Tee, the crackdown will impact teapot oil imports, but not overall crude imports or refining operations, as the NOCs are expected to fill the deficit.

This is a sentiment shared by industry experts in the wake of the recent wave of climate activism.

Apparently, OPEC and major national oil companies are reveling in the schadenfreude after Big Oil’s latest woes, seeing it as a great opportunity to grab more business and market share.

The defeats of the council chamber and the tribunal Exxon (NYSE: XOM), Chevron (NYSE: CVX), and Shell (NYSE: RDS.A) could prove to be a boon for Saudi Arabia’s national oil company Saudi Aramco (2222.SE), Russia Gazprom (GAZP.MM) and Rosneft (ROSN.MM) as good as Abu Dhabi National Oil Company. who seek to capitalize by filling the void that will remain if these companies start cutting oil production in an attempt to pacify investors.

“Demand for oil and gas is far from peaking and supplies will be needed, but international oil companies will not be allowed to invest in this environment, forcing national oil companies to intervene,Amrita Sen of consultancy firm Energy Aspects told Reuters.

Last year, Chinese President Xi Jinping turned heads after announcing that the country had set a goal of become carbon neutral by 2060. President Xi Jinping said China will adopt “more vigorous policies and measures” with the aim of reaching a peak in carbon dioxide emissions before 2030.

The announcement sent shock waves through the energy world because China is not only responsible for a quarter of global greenhouse gas emissions, but has also repeatedly resisted calls for cuts. emissions, arguing that the richer countries that benefited from earlier industrialization should bear the greatest economic burden. to avoid catastrophic warming. Last year, China’s carbon emissions reached 5.7 billion tonnes, roughly equivalent to the combined emissions of the United States and the United Kingdom. To his credit, Xi has adopted environmental protection as one of his main mantras as he seeks to temper the growth-at-any-cost mentality that dominated previous administrations.

Related: It’s Too Late To Avoid A Major Oil Supply Crisis

This pledge is sweet music to environmentalists, because no nation can do more than China to limit warming below the 1.5 ° C threshold set in the 2015 Paris Agreement. , the commitment would result in the largest reduction in predicted global warming of any climate commitment made by a nation to date, according to the research consortium Climate action monitoring.

A boon for renewable energies

But it’s even sweeter on the ears of clean energy enthusiasts as it could trigger some of the biggest inflows of investment in the renewable energy sector.

According to Wood Mackenzie, China’s goal of achieving carbon neutrality by 2060 would require investments of more than $ 5,000 billion, the majority of which would go to renewable energy production.

Woodmac estimates that for China to meet its target, solar, wind and storage capacities would need to increase 11-fold to reach 5,040 gigawatts (GW) by 2050 from 2020 levels. In the shorter term, Xi s ‘is committed to increasing China’s wind and solar power capacity from 500 million kilowatts to at least 1.2 billion kilowatts by 2030.

Such a large increase in renewable capacity will inevitably require an equally large increase in storage capacity.

Woodmac estimates that China will need to increase its storage capacity by at least 20% to meet its CO2 reduction targets. Utilities and on-site generators primarily use Li-ion batteries to harness electricity during peak production and release that energy at night, improving reliability and limiting price spikes. Unfortunately, these storage devices have a critical deficit: the inability to provide long-term storage as well as relatively high costs.

Chris Allo, President of ElektrikGreen, a Colorado-based developer of hydrogen-based energy storage solutions, came up with a possible solution: hydrogen.

Renewable electricity can be used to produce green hydrogen which can be stored in tanks before being converted to energy in a fuel cell, leaving a small carbon footprint. Back in August, Siemens AG (OTC: SIEGY) was contracted by Beijing Green Hydrogen Technology Development Co. Ltd., a subsidiary of China Power International Development Ltd. (China Power), to build the the country’s first megawatt of green hydrogen manufacturing project. Green hydrogen will be used as a fuel for public transport by the Yanquing District of Beijing during the 2022 Winter Olympics.

By Alex Kimani for Oil Octobers

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