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Oil soared and sank in energy chaos
LAST year was remarkably unusual for the global oil market, where crude prices soared to the historic high of over US$147 a barrel in July but collapsed to below US$40 in December amid the economic meltdown.
In China's energy sector, reforms have also been pushed forward in areas ranging from administration to pricing mechanisms, making the year of 2008 one of the most unusual in history.
The new fuel pricing system is providing more freedom in pricing and has already triggered competition between fuel suppliers. Across the nation, Sinopec and PetroChina are now cutting prices one after another to compete for customers ?? another by-product of the slowing demand.
This would have been hard to imagine at the start of last year when many drivers had nowhere to get their tanks filled, as rising oil rates and state-capped gasoline and diesel prices forced loss-making domestic refiners to reduce their fuel processing.
Sinopec's general manager, Su Shulin, has predicted that in 2009 the domestic fuel market could turn to a buyer's market from a long-time seller's one.
For oil firms, in particular Sinopec, the top Asian refiner, the new pricing regime also means appropriate profit margins for its business.
But as the government has said it will still impose a ceiling when crude soars back to high levels, the real test for the new system has yet to come.
Today we look at the major happenings in China's oil industry last year as well as previewing earnings outlooks for the nation's top three oil companies for 2009.
Snow problems
Fuel and power supplies were disrupted in January in some areas in south China hit by snowstorms. State-owned oil firms Sinopec and PetroChina and power distribution companies stepped up efforts to combat the disasters with government coordination.
Opinion: Unlike previous shortages caused by supply and demand imbalances, these natural disasters provided new tests for China's capability to handle energy shortfalls in emergencies. This has provided experience for the future.
Pipeline under way
The construction of China's second West-East natural gas pipeline started in February. The pipeline will carry up to 30 billion cubic meters of gas a year from Turkmenistan in Central Asia to the south and east boards of China, spanning 14 provinces, from 2011 on. The length of the project will exceed 10,000 kilometers. Turkmenistan has agreed to supply gas to China for 30 years.
Opinion: This project will play a key role in meeting China's rising demand for the cleaner-burning fuel, ensuring energy security and benefiting people's life styles. Shanghai will be one of the beneficiaries.
Administration setup
The National Energy Administration was established in July to take charge of the energy sectors including oil, gas, coal, power and renewable energy. It is responsible for drafting energy development strategies, proposing reform advice, state reserve management and international cooperation, among others.
Opinion: The setup of the energy administration came amid a reshuffle of various ministries under the State Council, aimed at strengthening the centralized management and improving the administrative efficiency of the energy sector, which in the past was regulated by several government agencies.
Reform plan
China unveiled its long-awaiting fuel pricing and tax reform plan in December, taking advantage of the collapse in international crude oil prices which had tumbled over 70 percent by year-end from July's record high. The new pricing mechanism and tax regime, effective this year, better aligns domestic fuel prices to costs and is conducive to energy conservation.
Opinion: The new pricing formula loosens state price controls and ensures a reasonable profit margin for refiners so it could help contribute to a stable market supply in a long run. Chinese refiners have long been losing money under high crude and capped fuel prices, and they have cut back production to reduce losses which led to a supply shortfall.
Sinopec move
Sinopec Group won Chinese government approval in December to buy Canada's Tanganyika Oil Co, which operates in Syria, for around US$1.8 billion.
Opinion: The purchase represents a typical example where a Chinese energy company takes advantage of lower commodity prices to buy an overseas rival amid a financial crisis. While in the long term this will help safeguard China's energy security, domestic companies should prepare more carefully and step up risk controls before launching overseas bids given the volatile market conditions.
In China's energy sector, reforms have also been pushed forward in areas ranging from administration to pricing mechanisms, making the year of 2008 one of the most unusual in history.
The new fuel pricing system is providing more freedom in pricing and has already triggered competition between fuel suppliers. Across the nation, Sinopec and PetroChina are now cutting prices one after another to compete for customers ?? another by-product of the slowing demand.
This would have been hard to imagine at the start of last year when many drivers had nowhere to get their tanks filled, as rising oil rates and state-capped gasoline and diesel prices forced loss-making domestic refiners to reduce their fuel processing.
Sinopec's general manager, Su Shulin, has predicted that in 2009 the domestic fuel market could turn to a buyer's market from a long-time seller's one.
For oil firms, in particular Sinopec, the top Asian refiner, the new pricing regime also means appropriate profit margins for its business.
But as the government has said it will still impose a ceiling when crude soars back to high levels, the real test for the new system has yet to come.
Today we look at the major happenings in China's oil industry last year as well as previewing earnings outlooks for the nation's top three oil companies for 2009.
Snow problems
Fuel and power supplies were disrupted in January in some areas in south China hit by snowstorms. State-owned oil firms Sinopec and PetroChina and power distribution companies stepped up efforts to combat the disasters with government coordination.
Opinion: Unlike previous shortages caused by supply and demand imbalances, these natural disasters provided new tests for China's capability to handle energy shortfalls in emergencies. This has provided experience for the future.
Pipeline under way
The construction of China's second West-East natural gas pipeline started in February. The pipeline will carry up to 30 billion cubic meters of gas a year from Turkmenistan in Central Asia to the south and east boards of China, spanning 14 provinces, from 2011 on. The length of the project will exceed 10,000 kilometers. Turkmenistan has agreed to supply gas to China for 30 years.
Opinion: This project will play a key role in meeting China's rising demand for the cleaner-burning fuel, ensuring energy security and benefiting people's life styles. Shanghai will be one of the beneficiaries.
Administration setup
The National Energy Administration was established in July to take charge of the energy sectors including oil, gas, coal, power and renewable energy. It is responsible for drafting energy development strategies, proposing reform advice, state reserve management and international cooperation, among others.
Opinion: The setup of the energy administration came amid a reshuffle of various ministries under the State Council, aimed at strengthening the centralized management and improving the administrative efficiency of the energy sector, which in the past was regulated by several government agencies.
Reform plan
China unveiled its long-awaiting fuel pricing and tax reform plan in December, taking advantage of the collapse in international crude oil prices which had tumbled over 70 percent by year-end from July's record high. The new pricing mechanism and tax regime, effective this year, better aligns domestic fuel prices to costs and is conducive to energy conservation.
Opinion: The new pricing formula loosens state price controls and ensures a reasonable profit margin for refiners so it could help contribute to a stable market supply in a long run. Chinese refiners have long been losing money under high crude and capped fuel prices, and they have cut back production to reduce losses which led to a supply shortfall.
Sinopec move
Sinopec Group won Chinese government approval in December to buy Canada's Tanganyika Oil Co, which operates in Syria, for around US$1.8 billion.
Opinion: The purchase represents a typical example where a Chinese energy company takes advantage of lower commodity prices to buy an overseas rival amid a financial crisis. While in the long term this will help safeguard China's energy security, domestic companies should prepare more carefully and step up risk controls before launching overseas bids given the volatile market conditions.
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