China's top crude supplier Saudi Arabia is set to ship about the same volumes to Chinese buyers in 2014 as it did last year, as the world's second-largest oil consumer takes more from Iraq and Central Asia, traders said.
Iraq has been offering cheaper prices and better payment terms to Asian buyers this year as it increases its output, while two new refineries in China are designed to run on crude from suppliers in Kazakhstan, Russia and the Middle East.
Since those two refineries will provide the bulk of China's oil demand growth in 2014, Saudi Arabia has been left with little room to increase its Chinese contract volumes. That means its 20 percent share of the China market will fall.
Saudi Arabia should still retain its spot as China's No. 1 crude supplier, although Iraq looks poised to challenge Angola as the second largest.
"None of the lifters have requested any additional volume for next year," said a Beijing-based trader with direct knowledge of the Saudi oil exports to China.
Traders estimated that annual Saudi contract volumes to China would hold at about 1.17 million barrels per day (bpd), with top refiner Sinopec Corp taking over 80 percent of the supplies. The rest will be split between PetroChina Co Ltd and Sinochem Corp.
China's crude imports grew 4 percent in 2013, or by an addition of just under 220,000 barrels per day, in the slowest growth in three years, customs data has shown.
LOOKING BEYOND
PetroChina's Sichuan and Sinochem's Quanzhou refineries, with a combined run capacity of 440,000 bpd, are expected online this year and both are looking past Saudi Arabia for crude.
PetroChina's landlocked Sichuan plant is designed to process oil from Kazakhstan and Russia, as well as the company's own output in northwest China.
The Sinochem plant, in Fujian province, will be looking to Iraq, Oman and Kuwait for oil, traders have said.
"Revamps made at Sinopec refineries in recent years have (also) driven plants to hunt for heavier, cheaper grades, which are not necessarily what the Saudis want to sell more of to China," said a trader with top refiner Sinopec Corp.
In the first 11 months of 2013, China bought 49.74 million tonnes of Saudi crude, or 1.09 million bpd, up slightly from a year earlier and making up a fifth of total imports.
"For a single supplier to have a market share of 20 percent, that is already a lot," the Sinopec trader said.
Refineries have also boosted imports from Iraq, where Chinese oil companies are due for a growing amount of payment in oil for their help in lifting Iraqi oil output.
Iraqi crude, mainly Basra Light, is generally cheaper than similar Saudi grades.
Chinese firms have signed up for 882,000 bpd of crude with Iraq's State Oil Marketing Organisation for 2014, up 68 percent from 2013, though companies may resell some of the barrels.
Iraqi exports to China expanded by around 150,000 bpd between January and November in 2013, customs data shows, making up over 80 percent of China's crude import growth for those months.
Angola was China's second biggest supplier last year, shipping in about 786,400 bpd through November, down more than 2 percent from the same period in 2012.
LAST-MINUTE REQUIREMENT
Some additional demand for Saudi oil may emerge in the second half of the year when new facilities enter steady operations, traders said.
But the increases may be so slight that they would fall within the tolerances that allow small fluctuations below or above contractual amounts, the traders said.
Sinochem, which has so far acted only as an import agent for Saudi oil imports for a PetroChina-controlled refinery, may buy from the kingdom on its own behalf for its first fully-owned refinery at Quanzhou.
"It's hard to decide the Saudi volume for Quanzhou now ...(Sinochem) will coordinate with Aramco to possibly raise the volume when the plant starts," said a third industry official.
PetroChina could also seek additional Saudi oil for its Qinzhou plant in southern province of Guangxi, when it finishes an upgrading in the second quarter to process sour crude.