OREANDA-NEWS. September 15, 2014. China's Guanghui Energy has received a crude oil import licence from the government, becoming one of only a few private firms to win the sought-after licence as Beijing slowly loosens its grip on the state-controlled market.

While the licence was for just 200,000 tonnes in 2014 - less than a third of China's daily imports - traders said the move showed a gradual opening up the sector was on track, which could lead to increased crude imports and greater investment. Guanhui Energy said in a statement that its wholly owned Xinjiang Guanghui Petroleum Co Ltd would be allowed to import 200,000 tonnes of crude oil for 2014, joining a market dominated by Sinopec Corp and PetroChina since an industry revamp in 1998. China, the world's second-largest oil consumer, regulates its oil imports via a quota system to ensure stable domestic supply.

The government has pledged to allow more private participation in the energy sector as part of a broader move to reform its clunky and inefficient state-owned sector. Senior oil traders said the latest move was largely cosmetic as Guanghui Energy, which operates in the natural gas and coal-to-chemicals business, does not own an oil refinery and would have to sell the oil to refiners owned mostly by Sinopec Corp and PetroChina. "As global oil prices become more stable, there will be less financial risk for the government to open the market to smaller, private players," said Gordon Kwan, head of oil and gas at Nomura in Hong Kong. Traders said Guanghui may have benefited from being an active investor in China's oil and gas rich region of Xinjiang in the remote northwest, an area Beijing is keen to develop. The company also owns two oil blocks in Kazakhstan.

China's independent oil refineries, a main swing supplier of the world's second-largest fuel market, have been eagerly waiting for Beijing to grant them crude oil import permits. Long deprived of crude oil as feedstock, the plants have to import lower-quality fuel oil for processing into gasoline and diesel. In the stock filing, Guanghui Energy did not give a quota for next year. At 200,000 tonnes, it's less than one cargo of very large crude vessel (VLCC), or less than a third of China's daily imports. FUTURES MARKET The move to open up the tightly-controlled oil market also comes as the Shanghai Futures Exchange is aiming to launch a crude oil futures contract later this year that will also be open to foreign investors.

As part of an ambitious plan for the contract to become a key pricing index, experts have said that China will need participation from more industry players to create enough liquidity for the contract to succeed. Shares in Guanghui Energy, which has oil and gas assets in Kazakhstan, shot up over 10 percent in morning trade to an eight-month high of 8.98 Hong Kong dollars, as investors hoped it would benefit from its oil imports. Apart from Sinopec and PetroChina, China, the world's largest crude oil buyer after the United States, will allow about 23 mainly state-linked firms to secure 29.1 million tonnes of crude oil for 2014.

This is equal to roughly one tenth of China's total crude imports, under so called "non-state trade" schemes. Sinopec and PetroChina fall under "state" trade, and the size of their quotas is largely at their discretion, based on refinery production plans, Chinese traders say.