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BEIJING, Nov 5 (Reuters) - Surplus annual production of diesel, gasoline and kerosene in China will double to nearly 30 million tonnes by 2020 from last year's level, boosted by increasing output from independent refiners, according to an industry research paper.
Smaller and independently operated refineries, known as 'teapots', are set to churn out more and higher-grade oil products after Beijing allowed them to import crude for the first time to encourage competition and boost private investment.
That could stoke exports of finished products from the world's second-largest refining industry after the United States, dragging on Asian refining margins DUB-SIN-REF already pressured by rising supplies from mega-sized new refineries in the Middle East.
"With improved feedstock, they'll be able to produce higher quality fuel ... Teapots will become more competitive in the Chinese fuel market," CNPC Economics and Technology Research Institute, the in-house research arm for state energy giant China National Petroleum Corp, said in its paper.
These plants, mostly in the eastern province of Shandong, used to produce diesel and gasoline by processing imported fuel oil from places such as Russia or Venezuela, a feedstock heavier and generally of poorer quality than crude oil.
The paper, released to media this week, estimated that teapot refiners could win quotas to import a total of 1.6 million barrels per day of crude oil. By the end of October, Beijing had granted 11 plants quotas to ship in a total of nearly 1 million bpd.
China's refining industry has long been dominated by state companies Sinopec Corp and PetroChina, which have only until recently started scaling down expansion after nearly two decades of building frenzy.
The growing fuel surplus will see independents queuing up to apply for permits to export as early as next year, industry experts said. For now, only a handful of state refiners are licensed oil exporters.
Total Chinese exports of diesel, gasoline and kerosene stood at around 20 million tonnes in 2014, according to customs data.
Teapot refineries are forecast to operate at 60 percent of their total capacity in 2016, up from an estimated 37 percent in 2014, according to CNPC.
It also estimated China's total crude oil processing capacity would reach 800 million tonnes, or 16 million bpd, by 2020 assuming an average addition of 400,000 bpd of new capacity each year.
Crude throughput is likely to hit 12 million bpd, or 1.6 million bpd more than the current rates shown in official data.
Reporting by Chen Aizhu; Editing by Joseph Radford