Second batch of quota likely less than 10 mil mt for key products
Exporting companies prefer to save quotas amid better margins at home
Fuel oil exports quota likely to hit 15 mil mt for 2021
China is likely to cap its key oil product exports -- gasoline, gasoil and jet fuel -- in 2021 by slashing quota allocation in an effort to meet carbon emission peak target, several Beijing-based sources with knowledge of the matter said on June 1.
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"We never believed China wanted to become increasingly short on crude just to export more products, in part as it raises pollution and increases carbon intensity," Grace Lee, senior analyst with S&P Global Platts Analytics, said.
As a result, the government planned to cut the annual export quota for the products significantly from 2020, which would discourage exporting interest, the sources said.
"We expect the total allocation in the second batch would be only a few million metric tons," a second source with an oil giant said.
Beijing in late December issued 29.5 million mt of quota for exporting the three oil products in 2021. In comparison, the total allocation for 2020 was 59.03 million mt, with 45.74 million mt of actual exports.
Among the quota holders, PetroChina would use over 85% of its first batch of quota in the first half of 2021, while Sinopec, Sinochem, and CNOOC would use about 50% in the period, S&P Global Platts estimated.
"The company prefers to save the quotas to export only when the margins in overseas are really good," the second source said.
The exporting companies have cut their June gasoil, gasoline export plans by 18% and 24%, respectively, from May, Platts reported on May 27.
Double effect
The talks of quote cut come after Beijing's announcement of introducing consumption taxes on imported light cycle oil and mixed aromatics from June 12, which is expected to result in less gasoil, gasoline exports from China.
Imported LCO and kerosene are blending materials to produce gasoil, while mixed aromatics are used for producing gasoline.
Higher tax costs will block the imports, resulting in reductions in domestic supply and push up gasoil and gasoline prices at home.
"Limited quotas and better domestic margin would encourage oil companies to further cut their oil product exports," a Beijing-based analyst said.
Fuel oil quota to rise
In contrast, the sources said the government is considering lifting fuel oil export quota to as much as 15 million mt for 2021 from 10 million mt last year.
Beijing has allocated 5 million mt export quota for the product so far this year.
"Fuel oil quota is not for cargo exports to overseas but only for bunkering to vessels plying international routes at Chinese ports, which is looked as keeping the carbon within China and manageable," the first source said.
China exported 6.6 million mt of fuel oil in January-April, according to data from the General Administration of Customs.
Almost all of the barrels were for bonded bunkering at Chinese ports, and more than 70% of them were domestically produced while the rest were imported, market sources said.
China has increased efforts to meet its targets of carbon emission peak in 2030 and neutrality in 2060 since last year. Government bodies and enterprises have been making their long term road map and short term work plan during 14th Five-Year Plan (2021-2025) to hit the targets.
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China likely to cut key oil product exports in 2021 by slashing quotas - S&P Global
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