BEIJING, July 17 /Xinhua-PRNewswire/ -- CCID Consulting, China's leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong (Hong Kong Stock Exchange: HK08235), concludes the change of pattern in China's product oil circulation industry and analyzes the courses of the change. The article also predicts the result of this change.
In accordance with the Agreement on China's Accession to the WTO, China's oil market was formally opened to the outside world on January 1, 2007. From the end of last year to the present, the Ministry of Commerce has successively issued the Administrative Measures for the Product Oil Market and the supplementary Guide Manual for Product Oil Operation Enterprises. A series of market changes followed. All these show that the new policies have strengthened the government's regulation on the product oil market. Most private oil enterprises will be eliminated in this round of market adjustment. The industry structure, previously a mixture of State-owned enterprises, private enterprises and foreign enterprises will become that of competitions and cooperations between State-owned enterprises and foreign enterprises.
Rising industry thresholds will force private enterprises out
The "exit" of private oil enterprises and "entry" of State-owned enterprises and foreign enterprises are the direct reasons for the above change. According to the Administrative Measures for the Product Oil Market issued by the Ministry of Commerce (hereinafter as the Measures), the stipulated industry thresholds are higher for private enterprises. The implementation of the Measures means demise for private enterprises without oil depots, dedicated rail lines, anchoring docks, stable long-term product oil supply channels.
In 2007, the concerned government department started to make annual qualification inspection of product oil operation enterprises. Those that fail to meet with the requirements of the inspection and cannot make rectification within a certain time limit will have their operation qualifications terminated. The China Chamber of Commerce for Petroleum Industry which represents the interests of private oil enterprises said that over 90% of the private enterprises in China do not possess or do not meet the re-application qualifications and will not be able to pass the annual inspection for 2007, thus these companies will not be able to obtain the new operation license. Among the first group of 8 enterprises with the qualification for product oil wholesale operations released by the Ministry of Commerce in May, there is only one private oil enterprise. This shows the reality of marginalization of private enterprise. Facing a difficult development situation and operational pressures, many private oil enterprises in Shanghai, Zhejiang, Fujian, Shandong and Shaanxi opted for exit.
State-owned oil groups enjoy favorable policies
Compared with private enterprises' entrenchment, State-owned oil giants are taking advantage of the new policies and forging ahead with great strides. Among this year's first group of 8 enterprises with product oil wholesale operation qualifications, 7 belong to State-owned oil groups: 4 to SINOCHEM, 2 to CNOOC and 1 to CAOSCO. These three State-owned enterprises are emerging big State-owned oil groups in the product oil circulation industry, following CNPC and Sinopec.
Seizing the opportunity of its granting of product oil wholesale qualification, CNOOC has recently sped up its pace of "coming ashore". With the Guangdong Oil & Gas Association acting as go-between, CNOOC has made contact with 200 local private fueling stations over the matter of acquisitions. Negotiations about 150-160 of them are being round up. The above acquisitions along with the putting into operation of its Huizhou refinery project with an output of 7.30 million ton product oil will fast bring CNOOC into the product oil terminal field.
The situation of the superior winning and the inferior getting eliminated brought about by the new policies for product oil circulation has forced most private oil enterprises to choose "sell-out" under the threat of possible elimination. Yet in the product oil circulation, big State-owned enterprises are eager to "buy in". Such exit and entry are bound to bring changes to the industry pattern. Another important reason for the situation is that some cities like Tianjin and Qingdao no longer allow new fueling stations to be built. To operate businesses in these regions, the easiest way for State-owned oil giants is to acquire private fueling stations there.
Foreign oil giants opt for cooperation due to limited source
As for foreign oil giants' strategies in this round of market adjustment, they do actively take part in the acquisition and integration of private oil enterprises. For example, Shell, BP and Mobil have all participated in negotiations over the "package" sales of private oil enterprises. But, due to policy restrictions and oil source problems, foreign oil giants in the product oil circulation field will continue to choose to cooperate with State-owned oil giants. This model of both competition and cooperation will be further strengthened. This can be seen from the 3 enterprises of the 2nd group approved for product oil wholesale operations released by the Ministry of Commerce in June. The 3 enterprises include Sinopec's 2 joint ventures -- Sinopec SenMei (Fujian) Petroleum and Fujian Refining & Petrochemical. Among them, Sinopec SenMei (Fujian) Petroleum is a joint venture set up in Fujian by Sinopec, ExxonMobil China Petroleum and Petrochemical Company Limited and Saudi Aramco Sino Company Limited, which respectively hold 55%, 22.5% and 22.5% of its shares. Fujian Refining & Petrochemical is a joint venture set up in Fujian by Fujian Petrochemical Company Limited (FPCL), ExxonMobil China Petroleum and Petrochemical Company Limited and Saudi Aramco Sino Company Limited, which respectively hold 50%, 25% and 25% of its shares.
Currently, ExxonMobil has been successful with its integrated refinery, chemical and sales strategy in China. In cooperation with Sinopec, it has implemented an integrated project in Fujian, which will pave way for its development in the market in Fujian and Guandgong provinces. Shell and BP have both set up retail joint ventures with Sinopec. Each of them has a sales network with 500 fueling stations in Jiangsu and Zhejiang provinces. BP has also set up a retail joint venture with CNPC to develop the huge market in Guangdong. Total has also cooperated with Sinopec to set up sales networks in North and Northeast China. Among China's 5 major State-owned oil groups, only CNOOC and CAOSCO have yet to cooperate with foreign enterprises in the product oil circulation field. It is believed that some latecomers will choose to cooperate with these 2 State-owned enterprises.
China's goal for building an oil market is to nurture diversified market entities, gradually form a market pattern with diversified oil sources and operational entities as well as differentiated brands and services, and establish a unified, open, competitive and orderly oil market system. But from the current policy environment and development trend, the situation of competition and cooperation between State-owned enterprises and foreign enterprises will generate certain risks to China's energy security. On one hand, the healthy market economic development situation is one of balanced development by diversified entities such as State-owned enterprises, private enterprises and foreign enterprises. But, the evolution into a situation of 2 strong competitors and 1 weak competitor will mean the dysfunction of the market economy in a particular field. On the other hand, there are more and more "competitive" elements in the situation of competition and cooperation between 2 major parties in the long run. State-owned oil enterprises will face growing competition pressures. This is because opening the oil market will be a general trend and grand trend and foreign oil giants are better than State-owned enterprises in terms of institutional mechanisms, fund strength, market experiences and services awareness. Also, the development history of foreign oil giants in China's oil and petrochemical industries shows a clear trend of change from joint venture cooperation to holdings and whole ownership. It can be predicted that as the oil market is opened further, State-owned oil giants will not keep their current absolute advantages forever. If the participation and supplement by private enterprises are also lost, China's energy security may be threatened.
About CCID Consulting
CCID Consulting Co., Ltd. (also known as CCID Consulting), the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong (stock code: HK08235), is a direct affiliate of the China Center for Information Industry Development (hereinafter known as CCID Group). Headquartered in Beijing, CCID Consulting has so far set up branch offices in Shanghai, Guangzhou, Shenzhen and Harbin, with over 300 professional consultants and industry experts. The Company's business scope has covered over 200 large- and medium-sized cities in China. Apart from home market development, CCID Consulting is establishing international cooperation links across the United States, the Asia-Pacific region and Europe, by setting up agents in the U.S., Japan, South Korea, Australia, Singapore, Italy and Russia, with the aim of going global.
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CCID Consulting
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