Crude processing monopoly weakens

08:59, June 21, 2010      

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The country's largest weapons manufacturer was given license to import crude oil, a pivotal move in reforming the oil industry, which is currently monopolized by five State-run companies, the Economic Observer reported Friday.

The China North Industries Group Corporation (CNIGC) has been approved to import crude through its subsidiary China Zhenhua Oil, State-run media said.

"The move will lead to more channels for overseas energy purchases and lower oil prices after more buyers enter the market," said Zhong Jian, analyst with Shanghai-based Toprise Information & Technology Company.

Crude imports are currently the exclusive domain of five firms - PetroChina, Sinopec , Sinochem, CNOOC and Zhu-hai Zhenrong.

China joined the WTO in December 2001, vowing to break up its State-monopolized oil industry over time. The country opened the oil import business up to more firms in 2002 after the passage of anti-trust legislation, but reforms have been slow going.

In 2007, China issued crude import licenses to 15 private companies, which then accounted for 20 percent of the country's total crude imports. But the government set strict criteria for the new importers restricting their ability to expand.

"In theory, the move benefits a more open and transparent market," said Lin Boqiang, director of the Center for Energy Economic Research of China at Xiamen University, Fujian Province. "But only in theory. All the crude imported can only be processed at Sinopec and PetroChina refineries."

The entrance of CNIGC, however, may herald a major break with the monopoly past.

"The oil imported by CNIGC will end up in its own refinery in Liaoning Province and sold in southern China," Zhong said.

This could set the stage for more companies to open refineries and slowly break the oil giants' grip on the industry.

So far, 23 companies have successfully entered the oil import business, including several private firms.

China, the world's second-biggest energy user following the US, has increased oil import quotas for private companies each year. In 2009, China Zhenhua Oil enjoyed a crude oil quota of about 1.2 million tons.

The company is expected to import 4 to 5 million tons this year, which will be valued as much as 25 billion yuan ($ 3.66 billion).

Source: Global Times


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