China's gas exports may surge in 2019 with additional 890,000 barrels per day

A domestic glut in its gasoline market and new refineries across its coastal provinces will push its supply.

China’s gasoline exports are projected to surge over the coming quarters driven by refining capacity additions and a continued slowdown in its own domestic demand which will see it pumping out an additional 6% or 890,000 barrels per day (b/d) of new refining capacity, according to a report by Fitch Solutions.

In December 2018, Beijing announced the first batch of oil products export quotas for four of its state-owned oil majors and handed out permits to oil firms PetroChina, Sinopec, China National Offshore Oil Corporation (CNOOC) and Sinochem to export 5.2 million tonnes of fasoline under the general trade category, the report revealed.

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“China awards two types of export quotas to its state-owned enterprises (SOEs) which are tolling and general trade terms,” Fitch Solutions explained. “Under tolling rules, refiners are exempted from paying import taxes on crude oil and export taxes on fuels, though in return must adhere to fixed volumes and time slots for exports, as set by customs.”

Exports under the general trade category however, are given more flexibility and oil refiners receive tax refunds after exports are completed or tax waivers on exports.

“The elevated quota indicates both China’s unwillingness and inability to curb domestic gasoline production, particularly after its SOEs have spent years trying to boost gasoline yields at their refineries, leaving exports as the only credible means to easing the domestic glut,” Fitch Solutions highlighted.

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In addition to a supply overhang in its domestic gasoline market, demand will be further exacerbated by the start of new refineries over the coming quarters on the back of upgrades and expansions by SOEs and private refineries constructing massive newbuilds across coastal provinces.

On the other hand, demand for China’s fuel will be much more subdued on the back of cooling economic growth, the introduction of stricter fuel efficiency measures and a negative spill-over onto consumer confidence spurred on by elevated US-China trade tensions.

“A noticeable trend weighing on gasoline demand growth will be the slowdown in gasoline-car sales which has a registered a YoY contraction for the fifth consecutive month in November,” Fitch Solutions revealed. “The outlook for new vehicle purchases for the months ahead remains similarly mediocre, with private consumption set to continue to underwhelm whilst higher taxes and the growing popularity of alternative-fuel vehicles set to gradually chip away at the demand for gasoline cars.”