July 19, 2017 / 4:26 AM / 2 years ago

China drafts new rules easing state oil majors' grip on storage

BEIJING/SINGAPORE (Reuters) - Beijing on Wednesday issued a draft of new regulations for China’s growing oil and fuel storage industry, helping loosen the state-owned oil majors’ grip on the sector as the nation pushes to reform its vast energy markets.

The government is looking to update storage policies issued in 2006, consolidating regulations for crude oil and rules for oil products under a single framework.

The main change proposed is to remove the requirement for distributors and storage companies to have secure and steady supplies of refined products, a condition only state majors like Sinopec (0386.HK) (600028.SS) and China National Petroleum Corp [CNPET.UL] can meet. The clause will still exist for crude oil.

“(The draft) has lowered the threshold for entry to the wholesale and storage industry,” said Dong Xiucheng, a professor at the China Petroleum University.

“The new draft emphasizes storage capacity first ... As long as you have enough storage capacity, you can apply to enter the industry.”

The draft proposal has also tweaked the tank capacity obligations from the 2006 document.

If the draft is implemented, companies must have a minimum storage tank capacity of 200,000 cubic meters to distribute and store crude oil and at least 20,000 cubic meters for refined products. Experts and traders said those requirements were in line with industry averages.

To only do one of those - either distribution or storage - the requirements are halved to 100,000 cubic meters and 10,000 cubic meters respectively.

That compares with a minimum of 500,000 cubic meters for a company to store crude and 200,000 cubic meters to sell it in the 2006 document. To sell or store refined product, according to those regulations, a company must have at least 10,000 cubic meters of storage.

Another draft rule change would require storage companies and wholesalers of crude oil or refined oil products to apply for a permit from the provincial government, which will be subject to approval from Beijing.

Many traders and executives at independent refiners often known as “teapots”, which could benefit from the changes, were still digesting the document.

“We don’t know what to make of this new regulation. It’s unclear whether we can apply to trade crude in China,” a trader with an independent refinery said.

Other regulations were largely in line with existing rules, such as the clause that stipulates Chinese companies must hold the majority stake in any firm with more than 30 retail outlets. BP (BP.L) and Shell (RDSa.L) operate gas stations in China through joint ventures with state-owned companies like Sinopec.

The document comes after the government said in May it would allow private companies to invest in its oil and gas storage.

It also comes as Chinese authorities prepare to launch the nation’s first crude oil futures contract, which will set a benchmark price for domestic oil using both local production and imports.

Aug. 19 is the deadline for public feedback on the draft rules.

Reporting by Hallie Gu and Josephine Mason in BEIJING, and Florence Tan in SINGAPORE; Editing by Joseph Radford and Tom Hogue

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