New Pipelines to Ease Qingdao Port Congestion

A group of Chinese companies plans to build new pipeline and storage facilities in eastern Shandong province, the hub for the country's independent refineries, providing much-needed infrastructure as crude oil imports into the region surge.

Shandong, home to nearly 20 independent oil plants nicknamed "teapots" due to their relatively small processing capacity, posted a 65 percent increase in crude imports in the first four months of 2016 on a year ago, customs data showed. This equates to an extra 851,000 barrels per day.

The rapid increase has led to weeks of delays in discharging cargoes at Qingdao port, the country's single-largest oil port by volume, and has helped drive a trucking boom to haul crude and refined products.

Three local companies, led by Qingdao Port International Co. Ltd, plan to build two side-by-side 216-kilometre (134-mile) pipelines to link Qingdao's Dongjiakou port area with Weifang, which is home to several teapots.

The pipelines will have an annual capacity of 11 million tons, or 220,000 barrels a day, Qingdao Port said on its website last week.

Qingdao accounts for nearly 30 percent of China's total crude imports of 7.46 million barrels per day between January and April.

The project, estimated to cost more than 1.5 billion yuan ($229 million), is undergoing an environmental assessment prior to a final investment decision.

The pipelines will eventually be extended to central and northern parts of the province to reach more plants, and to carry 30 million tons a year.

The companies have also started building an 11.3 million-barrel crude oil storage site in Weifang, which is a transfer point and home to several teapots including the 100,000 barrel-per-day Sinochem Hunrun Petrochemical Corp.

State-run oil group CNOOC earlier this month completed construction of a terminal at Yantai port able to dock VLCCs, due for operation end of June, said a CNOOC official.

CNOOC had by end-2015 also laid a 300-km crude oil pipeline linking Yantai with Zibo, and built a 9.5 million-barrel storage site at the port area, said the official.

State-run Sinopec Corp has been a dominant operator of oil pipelines in the province, but terminal and storage facilities have been under strain since Beijing last year allowed smaller plants to import crude, also granting them permits to export refined fuel.

"There is now an urgent market requirement to push these companies to invest," said Dong Xiucheng, professor of China Petroleum University.