* Diesel surplus to grow as refining capacity increases
* Sinopec exploring Africa and Australia; building storage
* First jet fuel cargoes shipped to U.S. and Canada
* PetroChina expands into Sri Lanka; CNOOC may trade in
By Jessica Jaganathan
SINGAPORE, Nov 13 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
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 U.S. 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
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 percent 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
Chinese refineries are typically set up to produce about 30
to 50 percent diesel, so as refining capacity grows, the diesel
"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 , 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.
(Additional reporting by Florence Tan and Jane Xie; Editing by
Ed Davies and Simon Webb)