THE country’s small independent refineries, often nicknamed teapots, account for a fifth of its refining capacity, consume about half its fuel oil imports and many use quite sophisticated technology, a study said.

Nearly 100 plants scattered across the country can churn out 1.8 million barrels of oil per day (bpd), mostly from fuel oil based feedstock because of government controls on crude sales, according to the report from energy news firm Argus.

The plants, which earned their nickname because of their small size and basic equipment, have upgraded and expanded in recent years to compete in a market where State-set pump prices can shave margins to razor-thin levels or destroy them entirely.

Many of the plants have upgrading facilities and together they have more than 600,000 bpd of cracking capacity.

But last year a yawning gap between global crude markets and Chinese fuel prices forced many into the red and they ran at average of just 47 percent capacity, Argus said.

Their crucial role in a tight fuel market has however secured their short-term future and some have even won wholesale licenses, even though they were until recently threatened with closure on environment and economic grounds, the report said.

“China’s independent refineries are key swing producers of diesel and, to a lesser extent, gasoline. They are also key suppliers of bitumen, accounting for about 60 percent of national production,” Argus said.

As global oil prices headed towards US$100 last year and China faced widespread diesel shortages, the government even relaxed its crude regulations, ordering oil majors PetroChina and Sinopec to provide their smaller rivals with feedstock.

But the plants’ demand for fuel oil, under normal conditions, has already had a massive impact on China’s trade flows.

Over half the plants and many of the most sophisticated ones are located in coastal Shandong Province. A second cluster is in Guangdong and the rest are scattered throughout the country, often close to major oilfields. (SD-Agencies)