As China’s energy demands grow, its ports are upgrading to meet rising oil and liquefied natural gas (LNG) imports. The ports of Qingdao, Rizhao, and Yantai, all in Shandong province, are building new terminals for this purpose.
Qingdao, which handles most of China’s crude oil imports, has begun building its second 300,000-tonne crude oil terminal in its Dongjiakou sub-port. With its current facilities of 12 crude oil tanker berths, two pipelines, and storage capacity of about 17.32 million m2, Qingdao processes about 16–18% of China’s crude oil imports. The new terminal is expected to commence operations by the end of 2019.
Annually, Dongjiakou port will be able to handle 50 million tonnes of crude oil, equivalent to 166 very large crude carriers (VLCCs), once the terminal starts operating.
Qingdao Port Group President Li Fengli says, “The hydraulic structure of the new oil wharf is designed to berth 450,000-tonne oil tankers. In addition, a water transfer terminal with a hydraulic structure designed to dock 120,000-tonne crude oil carriers will also be constructed.”
Liu Jin, general manager of Qingdao port subsidiary Qingdao Shihua Crude Oil Terminal, says that in recent years, to keep up with growing crude oil imports, the port has been improving infrastructure to create an expressway of sorts.
“We want to provide truly door-to-door crude oil logistics to the refining industry in Shandong, that is low-cost, efficient, safe, and environment-friendly,” said Liu.
Shandong province is home to many of China’s independent or “teapot” refineries, to better the region’s oil business connections, Qingdao port has expanded its crude pipeline further to Dongying, Shandong province’s refining hub.
The first two parts of the Dongyu pipeline have been completed and since August 2017, it has transported 9 million tonnes of crude oil to the refineries, resulting in cost savings of CNY185 million (USD26 million).
In addition, ancillary tanks in Guangrao were opened on 27 December 2018, after 16 months of construction. Catering to refineries in the cities of Weifang, Dongying, and Binzhou, the tanks will bring additional cost savings.
Construction of the pipeline’s third phase has also started. Once completed, the network will be able to transmit about 30 million tonnes of crude oil yearly, while its total storage capacity will reach 5.46 million m2.
It is reported that new pipelines originating from Dongjiakou have also been included in the planning and construction plan for oil and gas transportation facilities in Shandong from 2016 to 2050.
Qingdao Port’s upgrades coincide with Brazilian oil company Petrobras’ agreement to lease four 100,000 m2 crude oil tanks from Qingdao Shihua Crude Oil Terminal. The long-term agreement was signed in December 2018, although Qingdao port did not disclose the exact duration.
Qingdao Port says, “We will be running a crude supermarket with Petrobras based on the lease deal. Refineries in the Shandong province, where Qingdao port is located, can purchase crude on a real-time basis via a pipeline according to their demand. “The purchasing lead time can be significantly reduced as a result, as well as pricing risks related to foreign exchange rates and crude prices.”
In addition, PetroChina Fuel Oil, a subsidiary of Chinese state-owned oil refiner PetroChina, and Yantai Port Group will jointly invest about CNY5 billion to expand a crude oil terminal that can accommodate 300,000 dwt VLCCs, and crude storage tanks at the west Yantai port, and to build the second part of the Yantai-Zibo, also known as Yanzi, crude oil pipeline in Shandong.
The first part of Yanzi crude oil pipeline, which has been operational since the end of 2016, is operated by China National Offshore Oil Corporation (CNOOC) and Yantai Port Group. The 450 km pipeline, which can transport 20 million tonnes of crude oil annually, links Yantai port with local refineries in Binzhou, Dongying, and Zibo cities in Shandong province through pump stations along the way.
Shandong Dongming Petrochemical Group, China’s largest “teapot” refiner, is also investing in port infrastructure. The refiner has formed a joint venture, Rizhao Port Minggang Crude Oil Terminal, with Rizhao Port Group and Shandong Transportation Industry Fund, to build and operate a new VLCC berth in Rizhao. The new facility, scheduled for completion in 2020, will be the fourth VLCC berth in Rizhao and will cost CNY820 million to build. With an annual handling capacity of 18 million tonnes, the new facility will raise Rizhao’s crude oil handling capacity to 100 million tonnes a year.
US tanker consultancy and brokerage Poten & Partners says that China’s rapid economic growth has made the East Asian powerhouse the second largest oil consumer in the world, after the US, and the largest crude oil importer. The consultancy also says, “A relatively small change in China’s GDP can therefore, have a significant impact on the oil and tanker market, in particular on the demand for VLCCs. On top of China’s underlying oil demand, we should also consider the impact of China’s Strategic Petroleum Reserve [SPR] programme.”
China’s crude oil imports have grown rapidly over the past 10 years. Some 90% of China’s crude oil imports are seaborne.
In December 2007, the country imported 3.3 MMb/d. This increased to 8.4 MMb/d by the end of 2017, a compound annual growth rate of close to 10%. The growth in crude oil imports accelerated towards the end of last year. In November 2018, China’s crude oil imports averaged 10.43 MMb/d, an increase of 15.7% compared with November 2017. It was the first time that China’s monthly crude oil imports averaged more than 10 MMb/d. The previous record high was 9.64 MMb/d in April 2018, according to data from China’s General Administration of Customs (GAC). The spike in imports was explained down to smaller independent refiners, known as teapot refineries, rushing to fulfill their 2018 import quotas before they expired.
The rapid fall in crude oil prices during October and November also had an impact. Brent was hovering about USD85/barrel at the start of October. By the end of November, the price of Brent dipped below USD60/barrel.
China also wants to increase the ratio of natural gas in its energy mix to combat pollution and, in this regard, has been expanding its LNG import infrastructure. In 2017, China replaced South Korea as the world’s second largest LNG importer, importing 38.1 million tonnes of LNG that year. On 9 January 2019, two subsidiaries of Chinese state-owned oil and gas group PetroChina signed contracts with Yantai Port Group to jointly build a new LNG receiving and expand a crude oil terminal.
Kunlun Energy and Yantai Port Group will jointly invest a total of around CNY7 billion to build the LNG terminal that will have four 200,000 m2 LNG storage tanks on the western section of Yantai port, and a dock capable of managing and handling 266,000 m2 LNG carriers.
Kunlun Energy currently runs three major LNG-receiving terminals and a small LNG reserve storage, in Rudong in eastern Jiangsu province, Tangshan in northern Hebei province, Dalian in northeastern Liaoning province, and Hainan island, with annual LNG handling capacity of around 19.3 million tonnes. Kunlun Energy is also in the process of expanding the LNG-receiving terminals in Tangshan and Rudong and this is expected to be completed by 2020. Besides that, the company is planning to build 11 LNG terminals by 2030, according to a company representative.
Wood Mackenzie Research Director Nicholas Browne notes that while the US-China trade war has resulted in China imposing retaliatory tariffs on US LNG imports, the East Asian country has been turning more to Australia and the Middle East for its supplies.
In September 2018, PetroChina signed an LNG import deal with Qatargas to import 3.4 million tonnes of LNG annually for 22 years.
“As China pushes on towards a lower-emission economy, its demand for gas and LNG has grown significantly and we expect the trend to continue in the longer term,” said Browne.