Private refineries gain 20% more profits despite oil slump

The country's private oil refineries achieved an average 20 percent increase in profits last year, despite the 35 percent plunge in global oil prices, according to a leading industry analyst.

Li Yan, from Shandong Longzhong Information Technology Co, said much of the success was down to a decline in their own refining costs, made possible by the glut in global supply.

"Compared with that drop in costs, domestic wholesale prices for gasoline and diesel didn't fall as much, which also contributed to the profit rise, especially in Shandong province where up to 70 percent of the country's oil refining capacities are located," he said.

Crude output from Saudi Arabia and Russia still remains high, and added to more supply from the United States and Iran, the global crude market is expected to remain oversupplied this year.

China remains the world's biggest energy consumer, but the country's economic slowdown will weaken the market even further, said Li, adding the likelihood is that prices will remain low.

He said the major domestic crude explorers, such as China Petrochemical Corporation, or Sinopec Group, Asia's largest oil refining and petrochemical enterprise, and China National Petroleum Corp, also known as PetroChina, have been hit hard, and private refineries have been able to process more at lower costs.

Private operators have traditionally faced major regulatory obstacles in getting enough raw material for daily operations, as well as in export of their refined oil products.

But in addition to issuing more import licenses, the government is now accelerating the export rights of private firms.

In July last year, the Ministry of Commerce said 32 private companies had been given fuel-oil import licenses for the first time, marking a significant step toward breaking the monopoly of State-owned oil companies such as Sinopec and PetroChina, to import crude directly.

Fuel oil is an important raw material for refineries to produce gasoline.

On Jan 4, the ministry announced that a second group of 15 non-State refineries had been awarded licenses to import fuel oil.

"The key word for China's oil industry in 2015 was openness," said Chen Kun, an analyst with ICIS Energy, a Shanghai-based energy consultancy.

According to ICIS, four private Shandong refineries have already been given an export quota for 330,000 metric tons of gasoline and diesel for the first quarter of 2016.

Chen Xingyuan, deputy general manager of Dongying Yatong Petrochemical Co Ltd, said it has been a bright start this year for private companies hoping to participate in the international market, after more export rights were offered to local refineries.

Yatong itself has been awarded a 40,000-ton quota for gasoline exports in the first quarter.