What that means is the top price there...at the pump equals about $1.50 per gallon, USD.
The pic was taken in March of this year when we were all paying double that.
Posted on 12/12/2006 8:22:56 AM PST by Recall
China's wholesale market for crude oil and refined oil products will be opened to foreign investment from 2007, under new regulations issued by the Ministry of Commerce (MOC).
Two regulations, on the crude oil and refined oil markets, would break the monopoly of state-owed enterprises in both sectors, said Chong Quan, spokesman of the MOC.
The government promised to open the market on Dec. 11 under its commitments to the World Trade Organization (WTO).
(Excerpt) Read more at english.people.com.cn ...
It means that if you want to open a refinery or a chain of gas stations and you are a foreigner, you can do so, wheras before, you needed to be a domestic.
Therefore, expect any investors to run to their respective governments to get taxpayer guarantees for their investments. With risks transferred to their respective taxpayers, the ChiComs will essentially get their infrastructure built at little or no cost to them.
No, it means ExxonMobil, BP, Shell and others can invest in China for oil production and refineries, similar to many other countries. I believe today it operates like Saudi Arabia with only state owned petroleum companies.
It MAY mean that oil prices would go down. China is a competitor on the global market for the sources of oil that the US buys. If China produces more oil domestically, it would mean less global competition for OPEC oil and therefore prices might come down.
Just my .02 worth.
It also means that they are directly going to challenge the US reserve buck along the way.
Currently the government of China controls all the oil coming to and from China. It is done through a couple of arms, CNP and Sinopec being the main ones. They are all extremely vertically integrated...problem is they are running out of places to drill and have very few stakes in overseas production.
Those two are just about wholly owned by the government so whatever they decide to do, happens.
Because China has become a net importer of oil it means a few things...
China has its own on and offshore oil supplies, but its not enough to feed the monster. Hence they are now importing more and more.
Its been a 'you can buy from the red me or the blue me' type of situation forever.
What this article is saying is that foreign capital will be allowed to enter into the Chinese oil importing market. Its just like importing anything else... you buy at X dollars and sell at X+1.
Instead of having a huge direct state arm trying to go global this is supposedly paving the way for a bunch of smaller entities to "challenge" the big 2 in the importing of crude supplies. I say "challenge" but its really helping them out...as will be explained later.
What you will see is a bunch of joint ventures (the article said foreigners could invest but didn't say it would be without regulation!).... and those joint ventures will set up storage capacity of crude or even semi finished oil products... and they will be allowed to import and sell WHOLESALE to China.
This means this whole litany of Chinese/foreign companies will supposedly being going global trying to secure oil for China's market.
It means nothing about us buying oil from China. Its just a creative way for China to compete for global supplies.
As for impact on the price of oil, there are too many factors involved to say. If you knew that you would be a billionaire by now.
One thing they are failing to mention is the price fixing that is put on Gasoline and other consumer end heating oil, etc type of products.
The goverment fixes (literally) the prices and that as a result puts the pinch on the middle man.
Thus far the big 2 have been eating a hell of a lot. They import from Saudi at $70 a barrel, refine, then can only sell the finished product at the set level.
The prices of the end products are all set by the state.
In short, if you are getting excited and wanting to go into this business take a long hard look.
The only way they will make money is if the price of oil drops in a big way...to maybe $40. And even then, the big 2 and the government is still in control. You have to sell your goods wholesale to them still for further refinement or retail sale.
As for the price of oil, revisiting that.... it can go either way.... if the price of oil stays the same or rises, the price fixing at the pump prevents them from paying market rates without someone in the middle eating the loss...
If the price of crude drops the refinement and retail dispursement arms of the vertically integrated big 2 stand to gain.
If it goes up, they don't have to eat as much loss as before somewhere in the middle of the from the ground to the pump...
In essence you will see a bunch of worker bees popping up--that can be somewhat foreign funded to come feed mama with crude or semi finished product...Instead of the big 2 going global it will now be thousands of smaller unheard of companies going global and reaching out to the world.
Retailing your product is still way off limits...hence who the hell else are you going to wholesale to? Lemme guess... the govt!!! Ding! Ding! Ding...we have a winner folks...
By the way, China can and often does pay for its oil in USD.
I just hope it's not just another unfriendly country to utilize oil as a political or economic tool......and we have to bow and scrape as we do with the Saudis.
Leni
Retailing your product is still way off limits
...
By the end of last month, private firms doing wholesale business of refined oil accounted for 33.4 percent of the total private gas stations.
Let me do some homework on this piece...
What that means is the top price there...at the pump equals about $1.50 per gallon, USD.
The pic was taken in March of this year when we were all paying double that.
China's Gas Stations Offer Golden Opportunity
The McKinsey Quarterly, 10.25.02, 11:31 AM ET
China's automotive market is predicted to be the third largest in the world by 2008. The accompanying growth in demand for gasoline and related products--combined with government plans to deregulate the sector and the need to address the chronic inefficiency of the country's current distribution--should create a juicy opportunity for multinational oil companies such as ChevronTexaco (nyse: CVX - news - people ) and TOTAL Fina Elf (nyse: TOT - news - people ), as well as for China's two domestic giants, PetroChina (nyse: PTR - news - people ) in the North and West and Sinopec (nyse: SNP - news - people ) in the South and East.
Gasoline reaches the huge Chinese market through a fragmented retail and distribution network of about 90,000 stations, almost all state owned. Many are run more as sinecures than as businesses, often with a staff four to five times larger than the international norm but with less than a quarter of the average gasoline output of U.S. stations.
The Chinese government has resolved not to allow the country's energy infrastructure to burden the whole economy. It is fast deregulating the sector, which will be fully opened up to foreign companies in 2004 under the commitments attending the country's membership in the World Trade Organization. Foreign oil companies such as BP (nyse: BP - news - people ), ExxonMobil (nyse: XOM - news - people ) and Royal Dutch/Shell (nyse: RD - news - people ) have hitherto been restricted to one-off local deals in special economic zones or tied to investments in toll-road construction.
Although the stage should thus be set for canny corporations to move into the market, it remains unclear how they will make money. Competition is already driving down retail margins on gasoline, while prices for the best station sites have soared as China's large domestic oil companies have rushed to buy them.
Oil companies in the West facing similar margin pressures know that most gasoline stations are viable only if they offer general-retail facilities at least as large as a convenience store, in addition to gasoline. This is true in China as well. The highest-volume sites might be made profitable on their fuel revenue alone, but the rest need substantial non-fuel revenue to make a profit.
The strategic implications are clear. In China as elsewhere, the first decision for an oil company is whether to own and operate sites or merely to supply them with gasoline. If the company opts for ownership, it has a choice: to adopt a retail strategy and pursue non-fuel revenue from a portfolio of retail sites or to target only the highest-volume sites, using them to build a high-quality gasoline brand that can also be offered through independent retailers.
Either way, the oil company will need strong retail partners--foreign and local--to get the necessary scale for its products. Carrefour and Wal-Mart Stores (nyse: WMT - news - people ), which are building networks of retail sites in China, are obvious partners, but Jet, QuikTrip, Tesco and even McDonald's (nyse: MCD - news - people ) might also be suitable.
At present, the Chinese oil majors are pursuing neither strategy; they have simply rushed to grab any available site, where they sell as much petroleum-based product as possible while ignoring the retail potential. The multinationals have been more judicious in selecting sites for their initial joint ventures, but they, too, have neglected the strategic choice. Unless all of these companies, domestic and international alike, change tack, their investments in expensive Chinese real estate may unravel.
From The McKinsey Quarterly, 2002, No. 4
This chart goes along with post 11.
At the time of the photo we were paying (on average) 80 cents a gallon at the pump more than China....
I wonder if this is a reaction to Russia's recent behavior?
If the state run petroleum industry is buying its oil on the OPEC market at $70 barrel and selling it for half of what we Americans were paying at the time ($3.00 gal), then you base your assumptions on the fact that someone is taking a loss. Only to play devil's advocate here, let me disagree.
If the Chinese govt is not charging gas tax and the Chinese states are not chaging gas tax, that accounts for about 55 cents of the difference. I don't know what the average wage for refinery workers at state run refineries in China is, but I would be willing to be it's 50-75% less than what comparable jobs pay in America. Since it is a state run entity, they don't pay any corporate income taxes. All told, between the gas taxes, income taxes, lower wages, lack of health insurance, etc. that probably accounts for the $1.50 difference.
On the other hand, many governments run operations at a loss in order to boost their own economies. We do it here, that is why we are running a deficit and have such a huge national debt.
In regards to the Quik Mart concept, they are missing the boat there. That may be a uniquely American phenomenon, I don't know for sure. I am sure that somebody will point out to them that there is a VERY large profit margin the powers that be that there is money to be made and that will change quickly. The highest volume sites may be profitable on gasoline sales only, but since they are the highest volume they will be the prime sites to integrate retail sales of Big Macs, chips, soda, etc.
Thank you for all the time and attention you gave to this thread. I don't understand all you are saying but I appreciate your explanations.
I think competition inside China may be good for China but I don't see Walmart being good for China. Look how it eats up competitors here.
I had rather US companies not become retail partners with China. I'm not big on globalization and we certainly seem to get a lot of countries mad at us with our so called "free trade". I suspect this isn't something we will get to vote on.
It amazes me that there is such a struggle to get bills passed in Congress to drill in the United States, especially after 911.
Again, I thank you for your help.
You mean like Russia did?...
What did Russia do?
Retail fuel prices raised modestly amid speculation (Xinhua) Updated: 2006-03-26 08:38
China announced Sunday its decision to lift retail diesel and gasoline prices for the first time in eight months, while setting up a mechanism to offer some subsidies to disadvantaged communities and public service sectors
In a circular made public Sunday, the State Development and Reform Commission, which regulates energy prices, said the producer prices of gasoline will be raised by 300 yuan (US$37.5) per ton while that of diesel oil will be up by 200 yuan per ton.
To offset the impact of the price hikes to communities sensitive to higher prices, the commission said China's State Council has decided to launch a mechanism to subsidize some of the communities and public service sectors.
The recipients of the subsidies include grain growers, fishermen and fishing firms operating and farming offshore or in inland areas, using oil-driven fishing boats, state-owned forestry enterprises and nurseries of forestry centers, urban public transportation firms, said the commission.
It said the government will pay the unspecified amount of subsidies directly to grain growers to mitigate the impact of the price hikes of diesel oil and chemical fertilizers and other agricultural production materials.
For operators of rural passenger shipping business, the commission said the government will reduce the impact mainly through such measures as adjusting the charges of transportation, and offer proper amount of subsidies to those in difficulty.
The commission said local governments will offset the increased financial burden on taxi drivers in the urban areas mainly through readjusting the charges of transportation and imposing surcharge on fuel oil.
It said local governments may offer provisional subsidies to taxi drivers in the urban areas if they are unable to readjust the charges in the immediate future.
The Chinese Government has ordered various localities and government departments to implement the measures on subsides whileprice regulators at various levels should improve inspection and supervision of prices of processed oil to maintain the stability of the oil prices.
Energy sector is one of the very few areas that Chinese Government has yet to liberalize price control since China began to build a market economy.
The commission said China's current prices of processed oil are far below that on the international market, which is not helpful to oil refineries in China, to ensuring adequate supplies and to improving energy efficiencies, thus having negative impact on the stable operation of the economy.
Prior to the price hikes, the retail prices of domestically processed oil is about US$43 a barrel, while that of crude oil on the international market stands at around US$60, an official with the commission said in an interview with the press.
China has increased prices by about 20 percent since the start of 2005, including Sunday's move. Global crude oil prices have soared by 48 percent over that time.
The artificially lower prices have resulted in heavy losses of domestic refineries and made it difficult for the oil sector to ensure domestic supplies.
The central government has been slow in raising processed oil prices in the past two years to reduce the impact of higher oil prices on the disadvantaged communities and public service sectors,said the official.
The official said imported oil accounts for over 40 percent of the country's oil consumption, and changing oil prices on the international market are having growing impact on domestic oil market and prices.
Price Hike Long Speculated
The increase was expected by the end of this month, and a wild guess it could be as high as 20 percent lifted shares in Sinopec Corp, Asia's top refiner, and PetroChina.
"It's hard to believe that this is it, after all the speculation," said David Hurd, oil analyst at Deutsche Bank in Hong Kong. "The stock market is going to be disappointed."
Shares in Sinopec, which suffers more from low domestic fuel prices as it imports most of its crude, rallied 4.4 percent last week while PetroChina stocks climbed 5.2 percent.
Beijing handed Sinopec $1.2 billion subsidy last year to make up for its huge losses. PetroChina said last week that it lost 19.8 billion yuan ($2.5 billion) on refining and fuel sales in 2005.
Some stock market analysts have said they had expected broader reforms to align pump rates more closely with global crude costs and allow the rates to fluctuate more freely.
A bolder plan to allow more frequent price changes in bigger steps may have been held back by the thorny issue of how to shield lower-income users, mostly the country's 800 million peasants, against rising fuel costs.
The government has pledged to use pricing and tax measures to curb consumption, but is also committed to boosting rural incomes, analysts said.
But still, if the above graphic is correct, in the US 20% of the price of a gallon of gas goes to tax, on $3 a gallon thats 60 cents.
On $2.50 thats 50 cents.
As pointed out in the article pasted above much of the price differences were based around the discrepancy between China's internal production, and the international price of crude.
Another factor is China doesn't have 300 different grades of gasoline. I would also be interested to know their refining capacity...
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