Oil Tankers Remain at Anchorage at Qingdao Port Following Explosion [Update]

Asia's top oil refiner Sinopec has cut production for at least two of its refineries in China's eastern Shandong province after the pipeline blast which killed 55 people on Friday, industry sources said.

The adjustments are part of a juggling of oil refining operations across its plants after the disaster, which has sparked a public backlash and an apology from Sinopec, saying it will conduct safety checks on all its more than 30,000 km of pipelines.

Oil traders also expected Sinopec to cut back on crude purchases while a backlog of tankers outside one port clears. Inchcape Shipping Services (ISS), is advising that oil tankers are remaining at anchorage having been evacuated from Qingdao Port, China. Currently only the oil terminals are affected, with the exception of Dagang terminal, located at east Jiaozhou Bay.  Many tankers have received changed discharge instructions from domestic receivers.

Other bulk, general cargo and container terminals are operating normally.  Sea contamination has extended to around three square kilometres and the oil from the explosion has leaked into Jiaozhou Bay. It is unknown at present when the oil terminal will re-open.

The firm has reduced production at its Qingdao refinery, which has a capacity of 200,000 barrels per day and has also trimmed back on lubricant output at the Jinan refinery, even though gasoline and diesel production at the plant remains unaffected, industry sources said.

It was not clear how much production Sinopec cut at both plants. The company said in a statement to the stock exchange on Monday that its refining operations were normal and oil supply was stable.

"Production has been cut but not on a big scale," said one of the sources with direct knowledge of the refinery operations.

The blast at Qingdao port on Friday was China Petroleum & Chemical Corp's, also known as Sinopec, deadliest accident and is one of the worst publicly reported industrial disasters in China this year.

Chinese President Xi Jinping visited the city to examine rescue efforts, met victims and ordered to launch a broad safety checks on oil and gas pipeline network, Xinhua reported.

The accident, which led to oil spills at the port, caused the Qingdao oil terminal, one of China's largest, to shut briefly, disrupting crude supplies to refineries in the province and forcing them to draw down stocks.

Although the port reopened on Monday, the three-day closure has caused a backlog of ships off the Huangdao terminal, part of the Qingdao complex, prompting Sinopec to divert some cargoes to other ports, traders said.

Crude oil purchases may also be affected, traders said.

"Sinopec receives on average one VLCC (very large crude carrier) every day at the Huangdao terminal, so the disruption means Sinopec will need to slow down its purchases," said a trading official with knowledge of Sinopec's crude oil purchases.

The pipeline, which transports oil from Huangdao port to the city of Dongying, supplies crude to Sinopec's refineries in Shandong province. It also supplies crude to neighboring Hebei provinces as part of a wider oil supply grid.

Sinopec's refineries affected by the accident are relying on crude stockpiles and alternative pipelines for now.

Cangzhou refinery in Hebei province, which sources about 80 percent of crude from the pipeline, is using stockpiles and raising crude sourced from another pipeline, said an industry source said.

But most refineries only have stockpiles that can last about a week. An extended disruption would force the plants to cut production more heavily, the sources said.

The explosion, caused by crude oil leaking into the city's storm drains, left a gaping crater in a major street, overturned scores of cars and shattered windows at nearby buildings. Over 130 people were injured and nine were reported missing.

Calling the accident a "serious dereliction of duty", Yang Dongliang, director of the State Administration of Work Safety said the explosion exposed several problems such as the layout of oil pipelines and urban drainage pipes, poor pipeline supervision and unprofessional handling of oil leaks before the blasts, state-media Xinhua reported.