PRIVATE chemical producer Hengli Group has won State approval to import 400,000 barrels per day (bpd) crude oil, the largest quota ever for a private refiner, as it challenges the country’s smaller independent plants in an oversupplied Chinese fuel market.

The group’s listed unit Hengli Petrochemical has said that the National Development and Reform Commission (NDRC), the country’s top economic planner, had approved the quota.

The firm aims to start trial runs in October at a newly built refinery in the northeastern port city of Dalian that will be among the five biggest refineries in China.

“We will start using our quota this year,” said a senior Hengli official, who declined to be identified. “We hope to get enough allowances for the refinery to start trial operations in October.”

Another private chemical firm, Zhejiang Ronsheng Group, is also expected to start operating a new 400,000-bpd refinery in the eastern city of Zhoushan later this year.

The additional production capacity in China is likely to add to pressure on the country’s small, independent, or “teapot”, refineries, which are vulnerable to increased competition because of their modest output. Many “teapot” refineries produce less than 100,000 bpd.

“Hengli’s world-class scale, sophisticated refinery configuration that favors high-end petrochemicals and its location means it will be a killer competitor to teapots,” said Harry Liu of consultancy IHS Markit.

Liu predicted some of the smaller of the independents close in the next two years as a result of the competition.

Although the NDRC grants approval for quotas, the Commerce Ministry determines how much of a quota can be put to use.

“For next year, we are confident of we’ll get 20 million tons of allowances from the government,” the senior Hengli official said.(SD-Agencies)