Teapot’ oil refineries crack in tight market

BEIJING - China's small, polluting oil refineries, booming just a year ago, can barely keep their heads above water as slumping margins and slowing oil demand force them to cut back or cease production.

If oil prices stay high and China is serious about cleaning its air, many of the more than 100 such plants, called teapots because they are much smaller than a standard refinery, could be forced out of business.

Just 18 months ago, these plants were steaming in China's energy rally.

Last year, they supplied 10-15 per cent of China's 6.4 million-barrel-per-day oil market, prompting Beijing to tolerate their existence. The Government had ordered their closures about six years ago due to environmental reasons and overcapacity.

But the surging costs of imported fuel oil are suffocating them.

Asian benchmark Singapore fuel oil prices have jumped nearly 50 per cent this year, while the plants' main refined fuel, diesel, rose just 4 per cent as Beijing kept a tight lid on prices to control inflation.

Two years ago, private businesses were injecting millions of dollars to build or expand teapot plants. But not now. "There are too many of us," said one manager. "We are killing each other."

- REUTERS