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Oil reformation in Far East spells serious competition for U.S.

13

June, 2017
A. Solomon
Ed. M. DeHart
China National Petroleum Corporation

China National Petroleum Corporation

Late May, Chinese authorities announced plans to reform China’s oil and gas industry to build a more efficient and competitive global presence.

The Central Committee of the Communist Party of China and the State Council approved the plan, with reform guidelines stating, “[The Chinese] market should play a decisive role in resource allocation and the government role should be better played in order to safeguard national energy security, boost productivity, and meet people’s needs.”

China’s consumption and exportation of refined oil products (such as jet fuel, diesel, and gasoline) has compelled the country to begin a shift toward importing crude oil to meet domestic and foreign demand. Reformation began in February 2015 when new regulations paved the way for smaller refining firms to import oil. Combined with opening quotas for smaller refining firms, these steps reveal China’s plan to reshuffle the oil and gas industry with an emphasis on work specialization. The state has encouraged refining firms as well as engineering companies and oil and gas equipment manufacturers to act as independent enterprises.

State owned oil heavyweights are taking actions to ready themselves for these shifts.

Consumption to Production of China's oil

One of these heavyweights, Sinopec Group, plans to cooperate with private companies in sales of refined oil. China National Petroleum Corporation (CNPC) is opening its doors by allowing private companies to hold no more than a 49 percent stake in their oil exploration business. The Chinese government and its entities are not only giving the small firms permission in market growth and expansion, but also working with the businesses to achieve their goals.

Currently twenty-eight refineries have received quotas to import oil directly or refine oil that has been imported by the state.Thus far, these small refineries were responsible for 18% of total oil imports during the first quarter of 2017. The Director of Research at ICIS China, Li Li, stated, “In China, though, independent refineries[…] are the main driver of crude imports.” If China wants to top the U.S. in crude imports and hold the market for refined oil products, independent refinery quotas show great promise.

China’s reformation and expansion of the crude oil refinery private sector should provide a lot of benefits. The improvements in the country’s crude oil refinery sector should propel their competitive edge in the global market. If all goes well, China is on track to eventually outpace the U.S. in crude oil imports and refined exports before too long.

  1. http://www.chinadaily.com.cn/china/2017-05/22/content_29437500.htm
  2. http://news.xinhuanet.com/english/2017-05/21/c_136302910.htm
  3. http://www.reuters.com/article/us-china-reform-energy-idUSKCN0Y22RH
  4. https://www.nytimes.com/2016/10/18/business/energy-environment/as-china-shifts-from-exporter-to-importer-fortunes-change.html?_r=0
  5. http://www.reuters.com/article/us-china-economy-trade-crude-idUSKCN0UR0DU20160113
  6. http://www.reuters.com/article/china-oil-imports-idUSL4N0VQ14W20150216

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