Crude oil feast

By Liang Fei Source:Global Times Published: 2014-9-18 21:33:01

Regional refineries set to benefit from import rights as part of industry reform


An oil field of China National Petroleum Corp in Tangshan, North China's Hebei Province Photo: CFP



More private firms are expected to be granted the right to import crude oil in the near future, after privately-owned Guanghui Energy Co announced on August 28 that it had received approval from the Ministry of Commerce (MOFCOM) to import crude oil.

Before that, only the three State-owned oil giants, China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec) and China National Offshore Oil Corp, as well as some subsidiaries of the three companies, were allowed to import crude oil.

A new regulation is expected to further open up this sector for smaller companies. The National Development and Reform Commission (NDRC), the country's top economic planner, has finished drafting a regulation on the opening-up of crude oil imports, and the regulation is now pending approval, Shanghai Securities News reported Tuesday.

The report also said that around eight companies can get the first batch of permits and these companies should meet certain requirements in areas like capacity and environmental protection facilities.

In a draft regulation in April, the NDRC stipulates that companies applying for crude oil import permits should have the capacity to refine at least 2 million tons of oil products at a single facility, the report said.

The regulation will greatly benefit the so-called regional refineries, which now rely heavily on crude oil from the three oil giants, experts noted.

Both NDRC and MOFCOM did not reply to the Global Times' request for comments as of press time.

'A big deal'

Regional refineries are independent from the three oil giants, and many of these refineries are privately owned. Currently the sector is dominated by East China's Shandong Province, which has over 70 percent of total capacity of the country's regional refineries.

"It [opening-up of crude oil imports] is a big deal in the industry," said Chen Peng, a manager at Shandong Shtar Science and Technology Group - a regional refinery run by China University of Petroleum.

As crude oil imports are controlled by the three oil giants, regional refineries that cannot get enough crude oil usually import sub-standard fuel oil to produce gasoline. But the production process generates more pollution, costs are higher and the products are also of low quality.

Chen noted that the opening-up would provide more crude oil sources for regional refineries, which will bring down costs and give them an edge when competing with the three national giants in local markets.

In addition, due to a short supply of crude oil, regional refineries are not operating at full capacity most of the time. In 2013, Shandong regional refineries were only operating at around 30 percent capacity, said Sang Xiao, an analyst at commodity information provider Zibo Zhongyu Information Technology Co.

"The opening-up of crude oil imports could ensure better use of the capacity of regional refineries," Sang told the Global Times Tuesday.

This means it is likely private refineries will actively apply for the permits in the future, according to Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

"Crude oil import rights are the one thing private firms want the most in the energy industry," he said.

An import permit could greatly benefit refineries' business, but only a small number of companies could get the permits, Chen said, as the standards set by the NDRC will rule out most refineries.

Not easy

A slew of energy firms, such as Shanghai Lonyer Fuels Co and Shenzhen Guangju Energy Co, may benefit from the opening-up in crude oil imports, according to a research note from Haitong Securities on August 29.

Though the whole sector is upbeat about the prospect of the reform, Lin noted that the opening-up would not touch the core interest of the three oil giants, as the import quota granted to private companies will not be large.

Xinjiang-based Guanghui Energy was allowed to import 200,000 tons of crude oil in 2014, but the amount is tiny compared to China's total crude oil imports of around 300 million tons each year.

"The opening-up [in crude oil imports] so far is more symbolic than real," Sang said.

Also, unlike the oil giants, many private firms previously did not have an overseas presence, which will also be a hurdle for firms that are eyeing an opportunity in crude imports, Sang said. "There is a long way to go before private firms could actively participate in energy imports."

In this regard, Guanghui Energy has an upper hand. The company now owns assets in two oil fields in Kazakhstan, and Sang said its geographic location also gives it advantages, as Northwest China's Xinjiang Autonomous Region has been an important land passage for China to import oil and natural gas.

Deepening reform

China is stepping up efforts in reforming its State-owned sector, and opening-up of the energy industry has been a key part. China's energy industry is more open now and active participation from the private sector will bring more vitality, experts noted.

Besides the opening-up in oil imports, many other key sectors of the industry have been opened to private investment. Private companies were allowed to invest in shale gas exploration in a public tender announced by the Ministry of Land and Resources in December 2012.

Assets in oil pipelines have also been opened. PetroChina, the listed arm of CNPC, announced in May that certain assets from the first two West-East Natural Gas Pipelines are open to mixed investment from domestic private and local State firms.

Sinopec also made a breakthrough in its ownership reform. On Sunday, it announced that 25 investors, including privately-owned firms like Tencent Inc and ENN Energy Holdings Ltd, have together bought a 29.99 percent stake in a sales company under Sinopec.

However, some experts believe that energy industry reform is being conducted at a "slow" pace.

"The market had high expectations that CNPC and Sinopec could be included in the first batch of SOEs announced for a pilot reform program, but they weren't," Sang noted.

The State-owned Assets Supervision and Administration Commission announced a list of six SOEs in July to start trial reforms in areas like mixed ownership, but the two major oil companies were not included.

Oil and gas exploration is still closed for private investment. Experts noted that it is not very likely that the government will change this, given the strategic importance of the oil and gas exploration.

"The current progress [in reform in the energy industry] can be considered a concrete step, but regarding further development, we need to wait and see," Lin said.


Newspaper headline: Regional refineries set to benefit from import rights as part of industry reform


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