China exported 27.6% more oil products in the first half of this year than in the same period of 2006, following the country’s initiation of an ambitious plan to expand refinery capacity, according to preliminary data released today by China Customs.

China’s oil product exports in June reached 1.44 million tonnes, bringing the total of the first six months to 7.91 million tonnes, significantly higher than the 6.2 million tonnes seen in the same period last year.

The Paris-based International Energy Agency (IEA) forecasted in a medium-term oil market report that China will add 170,000 barrels per day (bpd) of refining capacity by the end of this year through Sinopec’s 60,000-bpd expansion of its Yanshan facility in Beijing and PetroChina’s [NYSE:PTR] 110,000-bpd expansion of its Dushanzi refinery in the northwestern Xinjiang Autonomous Region.

An additional four-fold expansion of China’s oil refinery capacity is expected for next year, according to the IEA, the energy security watchdog for 26 industrialized nations. The country’s refining capacity growth will reach 706,000 bpd, nearly half of the predicted 1.492 million bpd that will be added globally, with a 200,000-bpd project from Sinopec, a 240,000-bpd project from offshore oil giant China National Offshore Oil Corp. and an additional 260,000-bpd from the expansions of five other refineries.

Much of the new capacity is likely to be focused on producing higher quality products to supply the country with Euro III standard equivalent fuel by the end of next year, and Euro IV standard by the end of the decade, as well as making more distillates for transportation and naphtha as feedstock for petrochemical plants.

China has put considerable effort into upgrading its distillation facilities, and the IEA believes the country will continue to invest in coking and hydrocracking capacity, as well as in its ability to process the high-sulfur, but cheaper, crude oil that mostly comes from the Middle East.

The IEA further forecasted China’s oil demand to stand at 7.59 million bpd this year, or 8.8% of the forecasted global demand of 86.13 million bpd.

Demand from the world’s second largest energy consumer will further increase by between 450,000 and 500,000 bpd annually until 2012, according to the IEA.

In other news, the Ministry of Finance said China will tax oil exported by the foreign partners in offshore oil exploration joint ventures starting Aug. 1

China will give foreign oil companies that are already operating in offshore China oilfields another five years to pay the required 5% tax on oil exports from their joint-venture projects in the country.

Foreign companies holding exploration and drilling contracts with the China National Offshore Oil Corp. include ConocoPhillips, Chevron Corp., Royal Dutch Shell PLC, Kerr-McGee Corp. and Apache Corp., according to the Energy Information Administration.

For contracts signed after August 1, 2007, crude exports of Sino-foreign offshore oil exploration joint-venture projects will be levied with a 5% tax, while joint ventures that began operation before August 1 will be exempted until August 1, 2012.

The move is an adjustment to the Ministry of Finance’s new regulation from November 2006, which stated that oil exports from China would be levied a 5% tax in an effort to keep China’s energy resources at home. Taxes that have already been collected before August 1, 2007 will be refunded, according to the announcement.

China now allows participation of foreign oil companies in offshore oil exploration through production sharing contracts (PSC) with the China National Offshore Oil Corp. (CNOOC) [NYSE:CEO] in deepwater areas where the country still lacks advanced technology. According to the PSC model, CNOOC is entitled to no more than a 51% interest in any potential commercial discovery, and each party is to bear its own exploration costs.

CNOOC made 22 offshore exploration blocks available for foreign investment in March of this year, at a total area of 114,000 square meters, with three situated in the Yellow Sea, four in the East China Sea and 15 in the South China Sea.

CNOOC’s PSC contracts include three with Canada’s Husky Energy [TSX:HSE], three with U.S.-based Devon Energy Corp. [NYSE:DVN], two with British Gas and one with Texas American Resources.

The new export tax follows the imposition of a windfall tax on sales inside China imposed with little advance warning 16 months ago. The “Special Upstream Tax Levy” was applied to oil produced onshore and offshore China, and assessed at between 20% and 40% of the portion of the price over $40 a barrel.

China is the world’s fifth largest oil producer, yielding nearly 3.9 million barrels a day in 2006, and the second largest consumer globally at 7.3 million barrels a day.