China’s Green Targets Seen as One Reason for Fuel Quota Cut

(Bloomberg) -- China slashed the quota it allocates to oil refiners to export fuels such as gasoline and diesel, with an academic citing the country’s green targets as one reason behind the dramatic reduction.

Beijing is seeking to limit an unsustainable model of high crude imports and fuel exports, which generates pollution within the country, Dong Xiucheng, a professor at the University of International Business and Economics, said in a report in state-backed newspaper China Energy News on Monday. A tighter quota would help to achieve peak carbon emissions by 2030, he added.

Dong is a director of the Belt & Road Energy Trade and Development Center and the executive director of China International Low Carbon Economy Research Institute at the university in Beijing. He also sits on a committee for the National Development and Reform Commission, the top economic planner.

China this week granted 7.5 million tons of fuel export quotas in its second batch of 2021, according to local consultant SCI99. That’s down 75% from the first allocation and 73% lower than the second batch last year.

“This smaller-than-expected quota issuance does not preclude another larger allocation if demand in China softens and the excess products weigh,” said Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies. “Since it remains unclear if this is the government’s response to inflationary pressure – and therefore short term in nature - or a strategic shift to limit air pollution from refining - it’s hard to tell how lasting this will be.”

There are also other reasons behind the reduced quotas. Domestic supply has tightened after a crackdown on China’s private oil refiners led to a new tax on some blending products, curbing the output of diesel and gasoline. State-run processors are filling the void and boosting sales to local consumers, reducing the need to export surplus fuel.

See also: China Teapots Set to Cut Runs After Reduced Import Quotas: FGE

Thin export margins and weaker overseas demand also contributed to the cut, according to China Energy News. Profits for shipping gasoline and diesel fell last month by 390 yuan ($60) and 230 yuan a ton, respectively, compared with the start of the year, the newspaper said, citing Jiang Xuefeng, an official with CNPC’s Economics and Technology Research Institute.

Gasoline shipments in 2021 may decline by 22% to 12.44 million tons from a year earlier, while diesel exports may slide by 14% to 16.92 million tons, according to local consultant JLC.

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With assistance from Bloomberg