BP BP Plc

   By Jenny W. Hsu 
 

SINGAPORE--China's largest privately owned refinery, Shandong Dongming Petrochemical, is aiming to increase its long-term contracts in the coming years, which signals a change in buying behavior for the main growth driver behind China's surging crude demand.

"Our goal is to increase our long-term contracts from the current 30% to around 70% by the year after next," said Zhang Liucheng, the vice president and director of Dongming Group. Presently, Dongming has contracts with BP PLC (BP.LN), Royal Dutch Shell PLC (RDSA.LN) and Unipec.

China's independent refiners, known as teapots, have been a vital driving force behind China's surging crude demand. In the first half of the year, China's crude imports rose 14%, or 7.5 million barrels a day. Analysts say the teapots are solely responsible for China's growth in crude imports.

As of mid-August, a total of 27 teapot refineries have received or are applying for import quotas and licenses which will allow them to buy crude directly from foreign sources. This is a deviation from the past when they were limited to either importing fuel oil or buying crude from state-owned companies.

Speaking at an energy conference in Singapore, Mr. Zhang said it was entering into more long-term contracts because teapots are expected to ramp up their refining rate to about 80% in the next couple of years from the current 50%.

Currently, the teapots prefer crude from West Africa and Latin America due to a lower sulfur content when compared with product from the Middle East.

In July, Angola became China's biggest crude importer by shipping in 4.7 million metric tons, or 1.1 million barrels a day, a 23% jump from a year earlier.

However, this could change in the near future as at least seven major teapots are upgrading, which will widen their refining capability to include refined crude that is heavier more sour.

Dongming is also currently in talks with Qatar on importing liquefied natural gas. Mr. Zhang declined to elaborate on the timing or volume.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

September 08, 2016 00:17 ET (04:17 GMT)

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