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6 White Paper on the Business Environment in China
economy and energy sufficiency during the 12th Five-Year Plan Another PetroChina partner found itself in a similar pre-
period. There is a huge gap between the supply and demand for dicament toward the end of 2013: a $6.4 billion gas project
energy. Energy shortage could become a very prominent prob- being built by Chevron and PetroChina was reported to have
lem if an emergency occurs.”40 been delayed on more than one occasion over disputes about
the technical methods to be used in developing “tricky fields.”
More recently, China Petrochemical Corporation Chair- The project, Chevron’s largest in China, was initially expected
man Fu Chengyu warned that “China must embrace domestic by PetroChina to begin operations in 2010. Four years later, it
resources besides oil, such as coal, in a bid to curtail rising crude has yet to have had a “first gas” date announced.46
imports, which hit about 254 million tons in 2011, up 6% from
a year earlier.”42 Common delays in project openings contrast with concerns
about overcapacity. In recent years China Daily had indicated
According to Mr. Fu, “China [will] require 600 million tons that such overcapacity in the petrochemical industry would
of crude annually by 2020” if demand continues at its current continue to cause difficulties, and noted that fluctuating oil
trajectory and “China will really threaten the world.”42 costs on the world market have led the government to adjust
domestic costs as fast as 4 percent over 22 consecutive days.47
Unsurprisingly, however, oil continues to flow and the na- Between the adoption of this pricing mechanism in 2009 and
tion’s refining capability has grown apace. A Sinopec report in- October 2011, authorities adjusted fuel prices 16 times, with 10
dicated that “Plants in China may be able to refine 750 million of those adjustments being increases.48
metric tons of crude oil annually by the end of 2015, compared
with an estimated 507.5 million tons by the end of [2010].”39 An NDRC official also notes that the pricing adjustment
mechanism can be used to ease inflationary pressure; the same
Similarly, the report noted that “The share of foreign partic- official furthermore indicated that a “more market-oriented”
ipation in China’s domestic refining capacity may rise to 31.5 mechanism (to address the lack of transparency and other issues
million tons annually, or 4.2 percent of the nation’s total, by with the current system) is under study.48
2015, from the current 10.5 million tons.”39
At the time of writing, the NRDC had raised49 and low-
The first foreign-Chinese petrochemical joint venture went ered50 fuel prices four times each over the course of 2012, with
into operation in Fujian Province in November 2009. It is half- the last rate cut following two successive increases which were,
owned by Sinopec and the Fujian provincial government, and according to one analyst, intended to “reduce refineries’ loss-
half owned by Exxon Mobil and Saudi Aramco, who hold 25 es and prevent fuel shortages, which is important to maintain
percent stakes each,43 and was praised by Lin Boqiang, head of steady economic growth.”49
the Center of China Energy Economics Research at Xiamen
University, as being “a rather wise choice to encourage oil-rich Projections from the China Petroleum and Chemical In-
countries to make more investments in China,” which can help dustry Federation projected a 5 percent slowing of apparent oil
the PRC to secure (presumably strategic) oil reserves.43 consumption growth between 2011 and 2015 due to a slowing
of economic expansion and, to some degree, emission-reduc-
One place to put those reserves may be an upcoming tion efforts.51
“200,000 cubic meter oil products storage facility” in Tianjin,
the result of a joint venture between Royal Dutch Shell’s Chi- In 2011 year-on-year growth in oil consumption was report-
na-based business and the Tianjin State Farms Agribusiness ed to be at 6 percent.51
Group, noteworthy if only for a foreign company’s involvement
in the project. The $87 million facility is expected to begin op- More recently, independently-owned (but not for-
eration in June 2013. 44 eign-owned) ‘teapot’ refineries—so-called because of their
small overall capacity—have been feuding with major state-
More recently, another project involving Royal Dutch owned petrochemical companies over responsibility for a re-
Shell—this one a $13 billion refinery and petrochemical cent shortage in diesel fuel. According to Reuters, “State refin-
complex led by PetroChina and also including Qatar Petro- ers had said the teapots had reduced runs or shut down because
leum—was put on hold. The official reason cited for the delay they were unwilling to put up with negative margins,” while
was difficulty finding a suitable site to construct the complex; “Several independent refiners […] said the real problem was a
informally the “need for a massive landfill project” costing up lack of feedstock.” The fact that “independents largely refine
to $1.6 billion and “resistance from local residents concerned fuel oil as feedstock because crude oil imports are tightly con-
about worsening pollution” were both flagged as influencing trolled by the state-run refiners” would seem to lend credence
the decision.45 to their complaints.52
The Zhejiang project, in which PetroChina is expected to Accordingly, it was reported that several independent refin-
hold a 51 percent stake while Shell and Qatar Petroleum would ers were forced to “[sell] stakes to state refiners such as Petro-
each hold 24.5 percent, began in 2012 and targeted a refining China and China National Offshore Oil Corp (CNOOC) in
capacity of 400,000 barrels per day in addition to annual eth- exchange for crude oil supplies.”52
ylene output of 1.2 million tons.45
134
economy and energy sufficiency during the 12th Five-Year Plan Another PetroChina partner found itself in a similar pre-
period. There is a huge gap between the supply and demand for dicament toward the end of 2013: a $6.4 billion gas project
energy. Energy shortage could become a very prominent prob- being built by Chevron and PetroChina was reported to have
lem if an emergency occurs.”40 been delayed on more than one occasion over disputes about
the technical methods to be used in developing “tricky fields.”
More recently, China Petrochemical Corporation Chair- The project, Chevron’s largest in China, was initially expected
man Fu Chengyu warned that “China must embrace domestic by PetroChina to begin operations in 2010. Four years later, it
resources besides oil, such as coal, in a bid to curtail rising crude has yet to have had a “first gas” date announced.46
imports, which hit about 254 million tons in 2011, up 6% from
a year earlier.”42 Common delays in project openings contrast with concerns
about overcapacity. In recent years China Daily had indicated
According to Mr. Fu, “China [will] require 600 million tons that such overcapacity in the petrochemical industry would
of crude annually by 2020” if demand continues at its current continue to cause difficulties, and noted that fluctuating oil
trajectory and “China will really threaten the world.”42 costs on the world market have led the government to adjust
domestic costs as fast as 4 percent over 22 consecutive days.47
Unsurprisingly, however, oil continues to flow and the na- Between the adoption of this pricing mechanism in 2009 and
tion’s refining capability has grown apace. A Sinopec report in- October 2011, authorities adjusted fuel prices 16 times, with 10
dicated that “Plants in China may be able to refine 750 million of those adjustments being increases.48
metric tons of crude oil annually by the end of 2015, compared
with an estimated 507.5 million tons by the end of [2010].”39 An NDRC official also notes that the pricing adjustment
mechanism can be used to ease inflationary pressure; the same
Similarly, the report noted that “The share of foreign partic- official furthermore indicated that a “more market-oriented”
ipation in China’s domestic refining capacity may rise to 31.5 mechanism (to address the lack of transparency and other issues
million tons annually, or 4.2 percent of the nation’s total, by with the current system) is under study.48
2015, from the current 10.5 million tons.”39
At the time of writing, the NRDC had raised49 and low-
The first foreign-Chinese petrochemical joint venture went ered50 fuel prices four times each over the course of 2012, with
into operation in Fujian Province in November 2009. It is half- the last rate cut following two successive increases which were,
owned by Sinopec and the Fujian provincial government, and according to one analyst, intended to “reduce refineries’ loss-
half owned by Exxon Mobil and Saudi Aramco, who hold 25 es and prevent fuel shortages, which is important to maintain
percent stakes each,43 and was praised by Lin Boqiang, head of steady economic growth.”49
the Center of China Energy Economics Research at Xiamen
University, as being “a rather wise choice to encourage oil-rich Projections from the China Petroleum and Chemical In-
countries to make more investments in China,” which can help dustry Federation projected a 5 percent slowing of apparent oil
the PRC to secure (presumably strategic) oil reserves.43 consumption growth between 2011 and 2015 due to a slowing
of economic expansion and, to some degree, emission-reduc-
One place to put those reserves may be an upcoming tion efforts.51
“200,000 cubic meter oil products storage facility” in Tianjin,
the result of a joint venture between Royal Dutch Shell’s Chi- In 2011 year-on-year growth in oil consumption was report-
na-based business and the Tianjin State Farms Agribusiness ed to be at 6 percent.51
Group, noteworthy if only for a foreign company’s involvement
in the project. The $87 million facility is expected to begin op- More recently, independently-owned (but not for-
eration in June 2013. 44 eign-owned) ‘teapot’ refineries—so-called because of their
small overall capacity—have been feuding with major state-
More recently, another project involving Royal Dutch owned petrochemical companies over responsibility for a re-
Shell—this one a $13 billion refinery and petrochemical cent shortage in diesel fuel. According to Reuters, “State refin-
complex led by PetroChina and also including Qatar Petro- ers had said the teapots had reduced runs or shut down because
leum—was put on hold. The official reason cited for the delay they were unwilling to put up with negative margins,” while
was difficulty finding a suitable site to construct the complex; “Several independent refiners […] said the real problem was a
informally the “need for a massive landfill project” costing up lack of feedstock.” The fact that “independents largely refine
to $1.6 billion and “resistance from local residents concerned fuel oil as feedstock because crude oil imports are tightly con-
about worsening pollution” were both flagged as influencing trolled by the state-run refiners” would seem to lend credence
the decision.45 to their complaints.52
The Zhejiang project, in which PetroChina is expected to Accordingly, it was reported that several independent refin-
hold a 51 percent stake while Shell and Qatar Petroleum would ers were forced to “[sell] stakes to state refiners such as Petro-
each hold 24.5 percent, began in 2012 and targeted a refining China and China National Offshore Oil Corp (CNOOC) in
capacity of 400,000 barrels per day in addition to annual eth- exchange for crude oil supplies.”52
ylene output of 1.2 million tons.45
134
