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* Oil pipelines far away from independent refiners
* Shandong refiners need dedicated pipelines
China’s state-owned oil companies, which control almost all of the country’s oil and gas pipelines, recently released a list of lines that will be available for third-party use but the move is unlikely to ease the logistical woes facing the independent refiners given their location and lack of spare capacity.
The list released by CNPC, Sinopec and CNOOC includes 14,475 km of crude oil pipelines, 7,812 km of oil products pipeline and several gas pipelines across the country.
The move is in response to a requirement by the National Administration of Energy, which is responsible for planning the country’s energy sector, to allow third-party access to the country’s oil and gas pipelines and is seen as a step towards state-owned companies’ reforms.
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«The pipelines were designed and constructed for the three big companies’ specific refineries and these are located far away from the independent ones. I also don’t think there is spare capacity for the oil giants to share,» a Shanghai-based analyst said.
China’s independent refiners were given access to imported crude in mid-2015, but suffer from high logistics costs compared with their state-owned peers due to lack of pipeline access to move crude oil and refined products.
S&P Global Platts China Oil Analytic estimates that three in every four independent refineries in Shandong have to rely «either in part or entirely» on trucks to transport crude, oil products or both.
TOO FAR TO REACH
Only one pipeline built by a state-owned company is currently used by the independent sector — PetroChina’s 447 km pipeline to connect Rizhao port and Dongming in Shandong province with a capacity of 10 million mt/year (200,822 b/d).
The pipeline is currently used by the 7.5 million mt/year Dongming Petrochemical.
«It’s unlikely for the pipeline to be rented by other independent refineries in Shandong, as no other refineries are nearby,» said a source at Dongming Petrochemical.
Dongming Petrochemical, which has an import quota of 7.5 million mt/year, has received around 5 million mt of imported crudes through the pipeline so far this year, according to the source.
The pipeline has helped the refinery to cut its transport cost to around Yuan 60/mt ($1.20/bl) from Yuan 180/mt if it were to use trucks.
There are two other crude pipelines in the province with capacities of 15 million mt/year each — Huangdao-Weifang and Laizhou-Changyi.
The Huangdao-Weifang pipeline is built and used by Sinochem Hongrun PetroChemical, while the Laizhou-Changyi pipeline is built by ChemChina for its Changyi Petrochemical refinery in Shandong.
No other independent refineries have their own crude pipelines.
NO SPARE PIPELINE CAPACITY
Sinopec and PetroChina have massive oil pipelines to connect their refineries to ports or domestic oil fields, or even across the border to overseas oil suppliers. But there are very few independent refineries nearby to make use of the facilities for their crude imports.
And all pipelines listed by CNOOC are for gas.
In Shandong province, home to most of the country’s independent refiners, Sinopec has seven, or total 1,840 km, pipelines to link the ports or the Shengli oil block with its refineries in the province and in the neighboring provinces. However, these pipelines have no spare capacity.
«We have relied on the Dongying-Huangdao pipeline to transmit imported crudes, and there is hardly any spare capacity for others, until the new pipeline from Dongjiakou comes online,» said a source at Sinopec’s Qilu Petrochemical.
Qilu Petrochemical is located in Zibo in Shandong, which is also an independent refining hub.
Sinopec’s 283 km Dongying-Huangdao pipeline was built to send imported crudes from Huangdao area of Qingdao Port to its refineries in Shandong, and further down to Luoyang refinery in the neighboring Henan province.
Currently, the pipeline, with a capacity of 12 million mt/year, sends around 5 million mt/year of crude to Qilu Petrochemical, and the bulk of the remaining 7 million mt/year goes to Jinan in Shandong and a little less to Luoyang in the neighbouring Henan province.
The situation might change when the new crude pipeline from Dongjiakou at Qingdao port comes on stream in 2018, as Qilu Petrochemical would probably switch to the new pipeline at that time, according to the source.
CONSTRUCTIONS FOR INDEPENDENT REFINERS
What the independent refiners need are dedicated pipelines.
CNOOC, which operates one short pipeline in Shandong that is used by independents, is expected to launch by the end of 2016 a new 450 km Yantai-Zibo pipeline for the independent refineries.
The short one, which is under 50 km in length, connects Dongying port in Shandong with refineries nearby. Independent refinery Lianhe Petrochemical uses this crude pipeline to send imported crudes from Dongying port to its facility nearby for a transmission fee of about Yuan 30/mt.
The 20 million mt/year Yantai-Zibo pipeline is being co-built by Yantai port and CNOOC and specifically designed for independent refineries in Shandong.
Once it comes on stream, the crude pipeline will be able to send imported crudes to the local refining hubs in Dongying, Zibo and Binzhou through stations along the way, where around 10 refineries are located.
«The pipeline is built specifically for thee independent refineries, so it is convenient for them to use,» said a refinery source in Dongying.
PIPELINES ON THE DRAWING BOARD
Meanwhile, three local Shandong companies, led by Qingdao Port, plan to build two parallel 216 km crude pipelines to link Qingdao’s Dongjiakou port area with Weifang, which is home to several independent refiners.
The Dongjiakou-Weifang pipelines will have an annual capacity of 11 million mt/year, or 220,000 b/d.
Rizhao port together with a few independent refineries is planning to build a 300 km pipeline connecting the port with other Shandong independent refineries.
This pipeline, with a capacity of 20 million mt/year, is expected to send crudes to independent refineries in Zibo and Binzhou along the way.
Timeline for these two pipelines is not known yet.
–Analysis by Daisy Xu, newsdesk@spglobal.com
–Edited by Haripriya Banerjee, haripriya.banerjee@spglobal.com and Mriganka Jaipuriyar, mriganka.jaipuriyar@spglobal.com
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