November 16, 2022 [Reuters] – China’s diesel exports accelerated significantly in September after being severely restricted over the previous 13 months, according to data from the customs service.
Exports were boosted to 1.73 million tonnes (430,000 barrels per day) in September up from an average of 460,000 tonnes per month (114,000 barrels per day) between August 2021 and August 2022.
Volumes recovered to equal the average of 1.72 million tonnes per month between 2018 and the first half of 2021, before the government began restricting them (“Monthly statistical bulletin”, General Administration of Customs, Oct. 18).
Faster exports will provide some relief amid a global diesel shortage, but are unlikely to be enough to stabilise and rebuild global inventories, or offset any future disruption as a result of sanctions on Russia’s fuel exports.
China restricts overseas shipments of diesel, gasoline, jet fuel and other petroleum products through a quota system, administered by the Ministry of Commerce.
The country is a net oil importer so it makes sense to build refinery capacity to meet domestic needs for security reasons – but not to build a large export-oriented refining system.
The government’s industrial strategy is focused on increasing exports of high-value technology products while minimising exports of energy-intensive items that have little domestic value added.
Since refining is very energy intensive and a significant source of carbon dioxide emissions, the government has discouraged export of basic transport fuels to reduce domestic energy use and meet emissions targets.
The quota system also prioritises domestic consumers and businesses, ensuring supplies and inventories remain comfortable and helping hold down prices.
The sudden tightening of quotas between the third quarter of 2021 and third quarter of 2022, which fell mostly on diesel exports, contributed to the worldwide shortage of diesel and other distillate fuel oils.
Diesel exports were reduced by a total of 16.3 million tonnes, or 122 million barrels, over 13 months compared with the pre-June 2021 trend.
Recently, extra quotas have been awarded, which should help relieve some of the global shortage, provided they are maintained at a higher level.
However, the cumulative production and exports lost earlier in 2021 and 2022 cannot be recovered easily and will leave global inventories lower than they would have been in the short to medium term.
If exports rise by 300,000 barrels per day, as they did in September, that will meet only around 1% of global consumption estimated at 27 million barrels per day in 2021 (“Statistical review of world energy”, BP, June 2022).
Extra diesel shipments out of China will help, but rebalancing the diesel market still requires slower growth in the global economy and fuel consumption.