Refined oil exports making a dent in neighboring markets

China's rising refined oil exports are already having an impact and will continue to influence other markets in Asia and in the Far East as the country's capacity increases, experts said.

China's net diesel exports will expand to more than 6 million metric tons next year due to slowing domestic demand and growing output, said Li Li, research director at ICIS C1 Energy, a Shanghai-based energy information consultancy.

She estimated that the country's net diesel exports will reach 3.5 million tons this year.

China's top-two oil and gas producers - PetroChina Co Ltd and Sinopec Ltd - were both granted much larger export quotas for diesel and gasoline products in October from the Ministry of Commerce, a sign of China's increasing participation in the international oil products market.

Sinopec was awarded a 3.5 million metric ton export quota for refined oil products for the fourth quarter, up 320 percent compared with the previous quarter, according to data from ICIS C1 Energy.

The company's export quotas for diesel grew from 150,000 tons in the third quarter to 1.45 million tons for the fourth quarter, an all-time high.

PetroChina got a 2 million ton refined oil export quota for the fourth quarter.

Li said the fast rise of China's diesel exports has shown that both the government and producers are not as conservative as before in terms of domestic diesel supply in the market.

As the country is becoming more open in the energy sector, industrial insiders believe that private capital will have a possibility in future to participate in the energy exploration, refining and distribution businesses, based on recent governmental policies.

China's diesel refining capacities will continue to grow because of an increasing number of industry players, which will lead to stable diesel exports, the insiders said.

"China does not pursue exports in the oil refining sector, but when we have additional output, it's a good way to balance the profits and keep the revenue stable by exporting some share of the production," said Li.

She said China is already influencing nearby markets. Traders in Singapore are closely watching the data related to China's refined oil exports.

And due to China's thriving diesel exports, diesel prices in Singapore fell from $130.22 a barrel in September 2012 to $117.19 a barrel in April this year, down 11.2 percent.

However, an anonymous insider who works at Sinopec said that supplying the domestic market is the company's primary task.

In addition to diesel, for the fourth quarter, Sinopec got 1.52 million tons of export quotas for kerosene oil, the fuel used in the engines of plants and for heating and lighting systems, up 74 percent compared with the last quarter.

"The increased export quota will be used in November and December, which means it may have a big impact on the Asia-Pacific market," said Li.

If Sinopec makes full use of its export quota in the fourth quarter, China's monthly average diesel exports will reach 500,000 tons by the end of the year, while during the first quarter, China's diesel exports averaged 280,000 tons per month.

In the second and third quarters, average diesel exports were 110,000 tons a month, affected by the quota limits at the time.

China's diesel exports have been increasing since last October when the country exported 144,000 tons of diesel, up 9.1 percent year-on-year. In November 2012, China's diesel exports reached 360,000 tons, a 490 percent increase year-on-year.

Last year, China added new annual refining capacity of 35 million tons, reaching 575 million tons nationally. The country's capacity is growing faster than demand, according to a report by the CNPC Economics & Technology Research Institute.

Refineries other than the top-three energy giants - PetroChina, Sinopec and CNOOC Group - are also growing with bigger refining capacity, accounting for about 20 percent of the country's total capacity.

However, due to the slowing demand for refined oil products, the growth rate of diesel output was only 2.4 percent in 2012.