I'm a (Not So) Little Teapot - The Surprising Influence of China's Independent Refineries

Their nickname — teapot refineries — may make them seem small and nonthreatening, but China’s privately owned, independent refining sector is anything but. Teapots have been growing in size and processing sophistication, and they now account for about one-quarter of total Chinese refining capacity. Their rise has raised the ire of China’s big national oil companies, who are pressing the government to rein in teapot refiners’ aggressive tactics and alleged circumvention of tax and environmental laws. Today we look at the growing role of China’s teapot refineries, the challenge they pose to much larger competitors and the Chinese government’s recent efforts to put a lid on the teapots’ ambitions.

Teapots are privately owned, independent Chinese refineries that have developed — and, to a large extent, thrived — in the shadows of China’s large national oil companies (NOCs): China Petroleum & Chemical Corp. (Sinopec), China National Petroleum Corp. (CNPC) and China National Offshore Oil Corp. (CNOOC). Generally speaking, the 150-plus teapot refineries now operating in China (many of them located in coastal Shandong Province in East China) started out small and simple; most initially did little more than refine straight-run fuel oil into middle distillates (diesel). Even today the capacity of most individual teapots is 100 Mb/d or less (though a few are considerably larger).

As small, independent operators in markets dominated by big, state-owned giants, teapot owners are scrappy and resourceful. Time and again, they have responded to market opportunities by adding refining equipment and capabilities and, when it became possible, by importing crude (rather than buying fuel oil as their primary feedstock) and exporting refined products.

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