Subject to the price control of refined oil products, China's largest energy company PetroChina and Sinopec's refining business suffered huge losses in the first quarter of this year. Statistics show that in the first quarter, the overall loss in the refining sector in China was as high as 58.7 billion yuan.
The relevant research estimates that based on the latest (November 1, 2007) refined oil price increase, PetroChina and Sinopec had a profit/loss balance of approximately US$80/barrel in the refining sector. However, in the first quarter of this year, the international oil price hovered over a long period of time. Above $100 a barrel. Su Shulin, chairman of Sinopec, publicly stated that the company’s petrol produced in March lost RMB 2,162 per ton, and the diesel produced in that month lost more than RMB 3,000 per ton.
According to a report released by the International Energy Agency, if international crude oil prices remain at this level, Sinopec's refining capacity this year will reach a record-breaking $14 billion. However, Sinopec quickly denied this claim.
Last year, international crude oil rose by more than 80%. At the end of the second half of the year, international crude oil and refined oil products were eventually "upside down." China's refined oil has become a global "price depression." However, in this year's economic policy with inflation as the core, it is difficult to break through the refined oil price reform.
Who is the biggest beneficiary of China's cheap oil products? Take a look at the final consumers of refined oil. On the surface, the transportation industry is the largest user of refined oil, but according to calculations made by the former Director of Energy Research Institute of the National Development and Reform Commission and energy expert Zhou Dadi, the end-use energy consumption of the Chinese industrial sector accounts for 70% of the country’s total terminal energy consumption. The largest user of refined oil is China's manufacturing industry.
China's huge manufacturing industry has made China a world factory. According to industry experts, the rapid growth of foreign trade exports every year is driven by the cost advantage brought by cheap energy and cheap resources. "To a certain extent, the oil price control resulted in low oil prices, which is equivalent to 'China is subsidizing the world'", said Niu Li, deputy director of the Macro Research Department of the National Information Center.
"China's development model is extensive processing - consume a lot of energy - exports," Niu Li believes that under this model, too low energy prices subsidize the industrial export sector. The consequence of this is that China's oil product control policy has subsidized developed countries through export channels.
Chinese government departments have noticed the problem. In recent days, the state announced policies for importing value-added tax for refined oil imports, and financial subsidies for the loss of refining operations. However, according to a quarterly report released by Sinopec, this kind of subsidies does not make up for all losses. “In the past, China’s policy was that energy and environmental protection costs were relatively low and it was difficult to change in the short term,†said Niu Li.
As a result, the distorted refined oil pricing mechanism cannot transfer the huge costs of rising international crude oil imports to refined oil prices, which is a huge subsidy for downstream users. The continuous flow of Chinese manufacturing out of the country is equivalent to exporting huge subsidies to the world.
The reform of refined oil prices has been in dispute for many years. Under the current situation of high international crude oil prices, the resistance to reform is even greater. “This is China’s position in the global division of labor system. To change this fate, we can only change the development model.†Niu Li said.
The relevant research estimates that based on the latest (November 1, 2007) refined oil price increase, PetroChina and Sinopec had a profit/loss balance of approximately US$80/barrel in the refining sector. However, in the first quarter of this year, the international oil price hovered over a long period of time. Above $100 a barrel. Su Shulin, chairman of Sinopec, publicly stated that the company’s petrol produced in March lost RMB 2,162 per ton, and the diesel produced in that month lost more than RMB 3,000 per ton.
According to a report released by the International Energy Agency, if international crude oil prices remain at this level, Sinopec's refining capacity this year will reach a record-breaking $14 billion. However, Sinopec quickly denied this claim.
Last year, international crude oil rose by more than 80%. At the end of the second half of the year, international crude oil and refined oil products were eventually "upside down." China's refined oil has become a global "price depression." However, in this year's economic policy with inflation as the core, it is difficult to break through the refined oil price reform.
Who is the biggest beneficiary of China's cheap oil products? Take a look at the final consumers of refined oil. On the surface, the transportation industry is the largest user of refined oil, but according to calculations made by the former Director of Energy Research Institute of the National Development and Reform Commission and energy expert Zhou Dadi, the end-use energy consumption of the Chinese industrial sector accounts for 70% of the country’s total terminal energy consumption. The largest user of refined oil is China's manufacturing industry.
China's huge manufacturing industry has made China a world factory. According to industry experts, the rapid growth of foreign trade exports every year is driven by the cost advantage brought by cheap energy and cheap resources. "To a certain extent, the oil price control resulted in low oil prices, which is equivalent to 'China is subsidizing the world'", said Niu Li, deputy director of the Macro Research Department of the National Information Center.
"China's development model is extensive processing - consume a lot of energy - exports," Niu Li believes that under this model, too low energy prices subsidize the industrial export sector. The consequence of this is that China's oil product control policy has subsidized developed countries through export channels.
Chinese government departments have noticed the problem. In recent days, the state announced policies for importing value-added tax for refined oil imports, and financial subsidies for the loss of refining operations. However, according to a quarterly report released by Sinopec, this kind of subsidies does not make up for all losses. “In the past, China’s policy was that energy and environmental protection costs were relatively low and it was difficult to change in the short term,†said Niu Li.
As a result, the distorted refined oil pricing mechanism cannot transfer the huge costs of rising international crude oil imports to refined oil prices, which is a huge subsidy for downstream users. The continuous flow of Chinese manufacturing out of the country is equivalent to exporting huge subsidies to the world.
The reform of refined oil prices has been in dispute for many years. Under the current situation of high international crude oil prices, the resistance to reform is even greater. “This is China’s position in the global division of labor system. To change this fate, we can only change the development model.†Niu Li said.