19  October  2018

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 Infopetro -> Industry in Focus

China Drafts New Rules Easing State Oil Majors' Grip On Storage


Beijing on Wednesday issued a draft of new regulations

for China's growing oil and fuel storage industry,

helping loosen the state-owned oil majors' grip on the

sector as the nation pushes to reform its vast energy


The government is looking to update storage policies

issued in 2006, consolidating regulations for crude oil

and rules for oil products under a single framework.

The main change proposed is to remove the requirement for

distributors and storage companies to have secure and

steady supplies of refined products, a condition only

state majors like Sinopec and China National Petroleum

Corp can meet. The clause will still exist for crude oil.

"(The draft) has lowered the threshold for entry to the

wholesale and storage industry," said Dong Xiucheng, a

professor at the China Petroleum University.

"The new draft emphasizes storage capacity first ... As

long as you have enough storage capacity, you can apply

to enter the industry."

The draft proposal has also tweaked the tank capacity

obligations from the 2006 document.

If the draft is implemented, companies must have a

minimum storage tank capacity of 200,000 cubic metres to

distribute and store crude oil and at least 20,000 cubic

metres for refined products. Experts and traders said

those requirements were in line with industry averages.

To only do one of those - either distribution or storage

- the requirements are halved to 100,000 cubic metres and

10,000 cubic metres respectively.

That compares with a minimum of 500,000 cubic metres for

a company to store crude and 200,000 cubic metres to sell

it in the 2006 document. To sell or store refined

product, according to those regulations, a company must

have at least 10,000 cubic metres of storage.

Another draft rule change would require storage companies

and wholesalers of crude oil or refined oil products to

apply for a permit from the provincial government, which

will be subject to approval from Beijing.

Many traders and executives at independent refiners often

known as "teapots", which could benefit from the changes,

were still digesting the document.

"We don't know what to make of this new regulation. It's

unclear whether we can apply to trade crude in China," a

trader with an independent refinery said.

Other regulations were largely in line with existing

rules, such as the clause that stipulates Chinese

companies must hold the majority stake in any firm with

more than 30 retail outlets. BP and Shell operate gas

stations in China through joint ventures with state-owned

companies like Sinopec.

The document comes after the government said in May it

would allow private companies to invest in its oil and

gas storage.

It also comes as Chinese authorities prepare to launch

the nation's first crude oil futures contract, which will

set a benchmark price for domestic oil using both local

production and imports.

Aug. 19 is the deadline for public feedback on the draft


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