China National Petroleum Corporation (CNPC), parent company to PetroChina, is moving into China's oil heartland in Shandong province through a cooperative effort with local refineries.
Instead of entering into the long and costly process of purchasing local plants, the centrally-administered, state owned enterprise (COE) will form a new company, Shandong Refinery Investment Co. Ltd, with a registered share capital of up to one billion yuan, which will enable them to form partnerships quickly.
The joint venture will be mutually beneficial as it will allow local refineries to import much needed crude oil whilst enabling CNPC to expand its refining network. The government has allocated 1.7 million tons of crude annually to Shandong refineries since 1999, but capacity has increased dramatically since then from 26 to 80 million, meaning the refineries have to make up the difference with costly and inefficient fuel oil. Partnership with COEs will give local refineries access to crude import permits, which in turn will increase operational efficiency.
Entering the local market is notoriously difficult for major oil COEs, such as CNOOC, who have only acquired two refineries since 2008 and had plans for a 10 million ton capacity plant rejected by the local government in 2007. Conversely, CNPC will be able to form partnerships with multiple local companies quickly and efficiently.
Though ostensibly a win-win situation, local privately-owned gas station owners are concerned that partnership with CNPC will transport cheap refined oil to different parts of the country, limiting their only supply channel.
Published 23rd September, 2011
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