From Africa to Australia, Chinese refiners are exploring new markets to ship surplus oil products such as jet fuel and diesel, putting them on track to compete with global trading houses and refining centres such as Singapore.
The switch to being a growing exporter of fuel comes despite China recently becoming the world's largest net oil importer. The opening of more refineries to process oil has emerged just as the world's second-biggest economy shifts down a gear so there is less demand for some transport and industrial fuels, which are more sensitive to the pace of growth.
This has driven China's biggest refiner Sinopec Corp and its domestic rivals to look outside traditional markets, such as Vietnam and Hong Kong, to sell surplus cargoes, sources close to the matter said.
Chinese diesel exports could reach 3.7 million barrels a month by next year, traders said, more than double the average so far in 2013.
This sharp turnaround could mean refining margins in Asia are squeezed by the new supply, which could also make prices of fuel exports cheaper. The increased shipments come just as new refineries are also coming on stream in the Middle East next year and with higher US exports.
China's refining capacity was close to 12 million barrels per day by the end of 2012 and is set to grow by about 3 million bpd between 2013 and 2015, according to industry officials and media, more than double India's capacity.
Overall fuel demand in China was about 9.79 million bpd last month, according to Reuters calculations based on preliminary government data.
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Demand for gasoline and diesel is set to rise by 617,000 bpd and 718,000 bpd, respectively, over the next five years, according to estimates by JBC Energy.
China's economic growth target of 7.5% for 2013 would be the weakest in more than 20 years, slowing demand growth for diesel, used in factories and for heavy vehicles. Gasoline demand has held up better, supported by rapid growth in car ownership.
Chinese refineries are typically set up to produce about 30% to 50% diesel, so as refining capacity grows, the diesel surplus swells.
"So you have these large investment cycles where people build these refineries and they build them with technical specifications to maximise distillates output and that's what has happened in China," said Richard Gorry, JBC Energy's managing director in Asia.
China is expected to remain an annual net exporter of diesel for the next 10 years, he added.
Exports of heavy oils such as fuel oil could also increase as Beijing may open up its crude import market to more refiners next year, reducing the need for fuel oil as a feedstock, especially in smaller refineries, analysts said.
Sinopec Targets New Markets, Storage
Unipec, the trading arm of Sinopec, is looking at selling to Tanzania, Mozambique and Zimbabwe, the sources said, despite challenges to entering this market from well-established trading companies in Africa such as Trafigura.
African diesel imports are running at about 673,000 bpd and could grow to 766,000 bpd by 2015, analysts say.
Australia, where oil product imports are also expected to increase over the next few years as ageing refineries close, is another potential market, the sources said. The country imports about 220,000 bpd of diesel, analysts say, currently mostly supplied by Singapore and Japan.
Sinopec has already sent cargoes further afield - it exported a first jet fuel cargo to Canada in August from its Jinling refinery in Jiangsu province. That followed a jet fuel cargo sent to the United States in June.
Last year, Unipec participated in a tender by Sri Lanka's Ceylon Petroleum Corp for gasoline and diesel, traders said. It normally supplies oil products to Indonesia and Vietnam.
Sinopec's diesel exports could be shipped from China or from its refinery joint venture with Saudi Aramco in the Red Sea city of Yanbu, which is expected to produce its first oil in June next year, two sources close to the matter said.
Sinopec is expanding storage facilities, which will facilitate trade and exports. It plans to build Southeast Asia's largest oil storage terminal with capacity for 16 million barrels of crude and refined fuels in Indonesia's Batam free trade zone, an $850-million investment on an island close to Asia's oil trade hub in Singapore.
Sinopec is also building storage in the Indonesian province of Kalimantan, one source close to the matter said.
Petrochina And CNOOC
Petrochina <0857.HK> <601857.SS>, the listed arm of China's biggest oil producer, China National Petroleum Corp. (CNPC), secured a term contract to sell diesel to Sri Lanka last year.
China National Offshore Oil Company (CNOOC) is also looking to export about 1.5 to 3 million barrels of diesel next year, from its Huizhou refinery, a source close to the matter said.
The firm is expected to nearly double the refinery's capacity from the existing 240,000 bpd by next year.
CNOOC might also look at sales to Hong Kong or the Philippines, said the source.
China's long-term aim was to supply domestic fuel demand, rather than become a big net exporter. Still, refining capacity increases planned when demand exceeded supply are now providing surplus fuel, creating opportunities for trade.
Rules requiring refiners to supply cleaner fuel could lead to shutdowns of older independent refineries, eroding surplus supplies. Beijing could slow or halt new refinery construction if it sees supplies running too far ahead of demand.
"China's goal is to be balanced, and not to be a major importer or exporter of products," JBC Energy's Gorry said.