Chinese Downstream Oil Sector Entering a New Stage of Multi Player Competition

The Chinese downstream oil sector began entering a new stage of development since early 2009, when CNOOC turned its first world-class refinery into operation in Guangdong Province. And Increasing market competition is also opening opportunities to active international oil companies. The new multi player competition scenario will no doubt produce significant influences on the Chinese downstream oil sector.

 Since a major industrial restructuring in later 1990s, the Chinese downstream oil sector has been well regarded as an oligopolistic or even regionally monopolistic one, with two state oil giants – CNPC and Sinopec controlling three quarters of the country’s refining capacity, around a half number of total gasoline stations, and 80 percent and 90 percent of wholesale and retail oil volumes.

        The industrial structure has not faced any substantial challenges over the past decade, and is neither expected to undergo fundamental alteration in a foreseeable future. However, the sector is no lack of evolvement and noticeable changes under the dynamic global and domestic context, and in the course of rapid economic development and continuous reform in the country.

        The Chinese downstream oil sector began entering a new stage of development since early 2009, when CNOOC turned its first world-class refinery into operation in Guangdong Province. For the coming years, in addition to hundreds of small local enterprises, a few non-mainstream but quite high profiled state-run companies such as Sinochem, Huajin Group, Yanchang Group, and even Blue Star will either build their own refineries or establish new oil retail chains. Looking into the next decade or so, when CNPC and Sinopec likely remain dominating the domestic downstream oil market, a new arena displaying multi player competition will be gradually shaped.

        Increasing market competition is also opening opportunities to active international oil companies. Exxon has just commissioned a large refining expansion project in Fujian Province. Kuwaiti KPC has fixed a joint venture refinery deal with Sinopec in West Guangdong, which might also involve BP. Saudi Aramco is negotiating with Sinopec in investing Qingdao Refinery in Shandong Province. Russian state oil company Rosneft is going to build a large refinery with CNPC in Tianjin to process Russian crude oil. In addition to thousands of joint venture gasoline stations that CNPC and Sinopec agreed with Exxon, BP and Shell along the Coastal areas, Sinochem has teamed with Total to break into the oil retail market in North China. The most recently, Yanchang Petroleum Group has entered into a collaboration agreement with Shell to expand oil retain chains in shaanxi and Sichuan Provinces.

        This new multi player competition scenario will no doubt produce significant influences on the Chinese downstream oil sector including flows of both oil products and market information, trade patterns, market prices, roles of market mechanism versus state control, relations between suppliers and consumers, positions and strategies of individual oil players, and government policies as well.