Energy

China's private refineries blame oil shortage on monopoly

(Xinhua)
Updated: 2010-12-02 13:27

BEIJING - China's privately owned oil refineries have accused oil giants in the country of holding back supplies and fueling the diesel shortage that has plagued the country since late September.

The real reason behind the diesel shortage, however, was the monopoly of the oil market by a few State-owned oil giants that led to insufficient supplies when demand rose, said Zhang Yue, chairman of the petroleum unit with the All-China Federation of Industry and Commerce (ACFIC).

ACFIC is composed of private industrialists and businessmen and has been advocating for support to the country's private sector.

Zhang said at a press briefing?in Beijing?Friday that China's petroleum consumption in the first 10 months of the year rose about 10 percent year-on-year, but the export of refined oil products jumped 19.8 percent to 22.9 million tons during the same period. He did not clarify the sources of the data.

Also, private refineries, despite an indispensable part of the country's oil industry, lack competitiveness in the market because the country's oil giants are controlling their crude oil supply, said Zhang.

According to Zhang, the country's 60-plus private refineries have an annual refining capacity of over 80 million tons, accounting for?a quarter of the country's total.

However, it is hard for these private refineries to obtain enough crude oil from Sinopec and PetroChina, the country's top two oil refiners that are authorized by the government to import crude oil and reallocate to private refineries.

Zhang said private refineries could obtain crude oil from the two giants at no more than 10 percent of their capacity.

Further, at the time when demand for diesel rises, these private refineries are unable to expand production due to lack of crude oil.

Thus, they have to purchase residual fuel oil from overseas markets to produce diesel at a higher cost.

Zhang has since called on the government to moderately open the crude oil import market to private refineries so as to increase oil supplies and to stabilize the market.

Zhang's opinion was echoed by Wang Weihan, a researcher?at the Energy Economic Center at Beijing-based University of International Business and Economics (UIBE).

Wang said the causes of fuel shortages, also seen in other years, were essentially rooted in the monopoly status of the oil market.

"Without involvement and full competition from private oil enterprises, there will never be a mature and healthy oil market and industry. And the fuel shortage will re-emerge year after year," said Wang.

The accusation about the oil giants came shortly after the country's economic planner and price regulator, the National Development and Reform Commission (NDRC), had asked local governments to crack down on gas stations selling diesel above the State-set prices.

Previously on Nov 23, four affiliates of Sinopec and PetroChina were fined for overcharging.

The NDRC said these acts had exacerbated the diesel shortage and disrupted market order.

The behavior of the two oil giants has fueled beliefs shared by private oil refineries that oil giants like Sinopec and PetroChina were hoarding diesel to create shortages to force the government to lift the diesel price.

China's oil price-fixing mechanism, adopted in 2009, rules that domestic oil prices are allowed to change only if the international crude prices rise or fall more than?four percent in 22 working days.

Ceiling retail prices of diesel and gasoline are set by the NDRC, but the wholesale prices are decided by oil companies Sinopec and PetroChina themselves.

As international crude prices are on the rise, China' s diesel wholesale prices are higher than the retail prices, which forces private refineries to suspend production to avoid losses.

This, industry observers say, also exacerbated the diesel shortage that forced trucks to line up in gas stations for refilling.

Currently, more than 2,000 privately owned gas stations in southern China have run out of diesel, according to a survey conducted by the China Chamber of Commerce for the Petroleum Industry.

Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, said China should further upgrade the current oil price-fixing mechanism to let price play its full role in the market.

The two oil giants, however, have cited the rising demand for diesel in the domestic market as the main reason for the shortage.

China has planned to reduce energy consumption by 20 percent per gross domestic product unit during the five years between 2006 and 2010.

As the deadline approaches, some provinces have taken emergency measures,such as limiting power supplies to cut energy consumption.

This move has forced factories to turn to diesel for power, pushing up the demand dramatically.

In order to relieve the diesel shortage, both Sinopec and PetroChina have announced the speeding up of production and importing diesel from overseas market.

The refining of crude oil by Sinopec hit a record high of 17.6 million tons in November, sources?at Sinopec said. This has added extra diesel production of more than 300,000 tons.

Related readings:  China cracks down on diesel overcharging  China punishes firms for diesel price rigging  Diesel shortage might end in December  Sinopec suspends diesel exports amid domestic market shortage

Also, Sinopec imported 280,000 tons of diesel in October, attempting to meet the demand.

In the meantime, diesel exports have been suspended to allow for first meeting the domestic demand.

As a result, diesel stocks of Sinopec have rebounded since Nov 19, said Xia Shixiang, deputy general manger of Sinopec's sales company.

Xia predicted that the diesel shortage would be relieved by the end of this month.