SINGAPORE (Reuters) - Hengli Petrochemical wants to be China’s first private exporter of jet fuel, a Hengli spokesman and other company sources said, but the move against the dominance of state oil companies requires licensing and approvals that will be hard to come by.
Hengli, initially a petrochemicals maker, is ramping up a 400,000 barrels-per-day (bpd) oil refinery in the port city of Dalian to full capacity after a December startup.
It expects to churn out 5 million tonnes of refined products (about 40 million barrels) by year-end, including up to 3 million tonnes of aviation fuel, two company sources said, going after the fuel for which demand growth is fastest.
Hengli, though, has to first get its jet fuel certified by aviation authorities, and then win export allowances before shipping any supplies abroad. Without those clearances, unless it can win the right to sell aviation fuel domestically, it would be forced to adjust its output to produce more diesel at the cost of the higher-value product.
“The company is hopeful of getting the export quotas ... but we foresee barriers in winning the domestic licensing,” said a senior Hengli source.
An executive with another private refiner based in Shandong, a hub for smaller independent operators, said: “Few independent plants are making jet fuel because it’s a monopolized market and needs certifications that are hard to obtain.”
Hengli’s new plant and a similar-sized private refinery that Zhejiang Petrochemical started trials on this month are adding to China’s swelling fuel surplus as the nation’s refinery throughput outpaces demand growth.
To find a profitable market, Hengli has applied for 3 million tonnes in export quotas for its jet fuel output this year, a Hengli spokesman said, without giving a timeline on when it may win the permits.
The Ministry of Commerce and the National Development & Reform Commission, who are together responsible for assigning export quotas, did not respond to requests for comment.
Winning those quotas would make Hengli China’s first private refiner to export aviation fuel, but before it can get to that stage, it first has to get an airworthiness certification for its fuel from the Civil Aviation Administration of China (CAAC).
Hengli has already applied to the CAAC for the certification and expects to get it in July when the refinery production stabilizes, the company spokesman said.
A CAAC spokeswoman confirmed CAAC has received Hengli’s application, but gave no information on approval or timing.
China earlier this month issued its second batch of fuel export quotas for 2019, all to state-run refiners, extending a policy that bars independents from exporting fuel.
For domestic distribution, Hengli must further be licensed by the Domestically Produced Aviation Fuel Certification Committee, which oversees jet fuel production and distribution.
“We reached out to the committee several times but never got any clear feedback on when our case will be followed up. It seems the agency is extremely cautious with granting a license to a private firm,” said one company source.
The fuel agency’s main office in Beijing is located at the headquarters of state-owned China Petrochemical Corp, the parent of Sinopec Corp, the country’s top refiner. The committee is made up of members from China’s aviation industry and state oil companies, including Sinopec.
A Sinopec official who sits on the fuel committee confirmed that Hengli has made inquiries on applying for domestic licensing, but he said the committee has yet to formulate a procedure for private producers and previously has only dealt with state-run refineries.
“In an oversupplied jet fuel market, we should try to preempt any risks by being more stringent with new suppliers as this is about supplying airplanes,” said the official, declining to be named because he’s not authorized to talk to the media.
Sinopec declined to comment.
Without either the export documentation or the licensing to sell jet fuel domestically, Hengli would choose to produce more diesel or blending components for the motor fuel at the expense of jet fuel, said company sources.
“We could easily shift to make more diesel or similar products to sell domestically,” said the senior Hengli source.
Should Hengli succeed in breaking into the jet fuel market either internationally or domestically, however, other private refiners would likely follow suit.
Zhejiang Petrochemical would also be interested in export quotas and licences, said a company executive who asked not to be named.
Calls to Zhejiang Petrochemical went unanswered.
The Hengli sources declined to be named as they are not authorized to talk to the media.
(1 tonne of refined oil products is about 8 barrels)
Reporting by Chen Aizhu; Editing by Henning Gloystein and Tom Hogue