China Issues Crude Oil And Oil Products Trading Licenses

The Ministry of Commerce (MOC) on July 28 issued the first batch of licenses for crude oil distribution and storage, while the third batch of oil product wholesale licenses were granted, after China opened its crude oil market at the end of 2006 and implemented the Administrative Measures on Oil Product Market and the Administrative Measures on Crude Oil Market on January 1, 2007.

According to the statement of MOC, the first batch of crude oil distribution licenses were given to PetroChina, Sinopec, CNOOC Refining & Petrochemical Co., Sinochem International Corporation and China Arts Huahai Import & Export Corporation. PetroChina and Sinopec also acquired the license for crude oil storage.

Four of these five companies who were licensed to distribute crude oil - PetroChina, Sinopec, CNOOC and Sinochem - are China's largest state-owned oil companies and they have already been trading crude oil in China prior to the statement indeed. As a matter of fact, the statement was to confirm their qualification on regulatory procedure.

MOC also granted six oil products wholesale licenses to China Arts Huahai Import & Export Corporation, Liaoning Fangyuan National Reference Petrol Co. Ltd., Dongming China Petroleum Fuel & Petrochemicals, Xinjiang Zetian Petroleum & Chemicals Co. Ltd., Maoming Gang'an Petroleum & Chemicals Co. Ltd. and Ningxia Baoneng Industry Co. Ltd., as well as five oil products storage licenses to Maoming Gang'an Petroleum & Chemicals Co. Ltd., Jiedong Tonghui Energy & Chemical Co. Ltd., Xinjiang Zhong You Chemical Group Co. Ltd., Urumqi County Petroleum Co. Ltd. and Xinjiang Zetian Petroleum & Chemicals Co. Ltd..

The statement, on the one hand, is one following-up step taken by the Chinese government to regulate its crude oil market, after it set in late 2006 a new threshold for domestic and foreign-funded firms to apply for distribution right. For instance, this time the state deprived four companies of oil products wholesale rights at the same time, which failed to meet related requirements.

On the other hand, the statement is unlikely to impact state-owned companies' dominance on China's crude and oil product markets or even can be regarded to some extent as enhancement to their dominance. Because which company could be engaged in crude oil or oil product distribution now is not determined by market competition. So far, no new oil player is allowed to enter the crude oil distribution sector and merely state-owned oil companies have been granted with crude oil distribution and storage licenses.

Besides, the regulation that authorizes PetroChina and Sinopec as the sole ultimate oil product distributors still stands, thus other companies will continuously have no choice but to sell and purchase oil products to and from the two big oil giants.

Although China's opening-up earlier this year allows domestic private companies and even foreign companies which have established joint ventures with state-owned oil companies to enter the crude oil distribution and storage market, they have to apply for licenses and it is still unclear when the government would grant crude oil distribution licenses to them.

Oil products dealers would be more pleasant at the state's policies. In June, two foreign joint-ventures with Sinopec - Fujian Refining & Petrochemical Co. Ltd. (FRPC) and Sinopec SenMei (Fujian) Petroleum Co. Ltd. (SSPC) - both of which are partly owned by ExxonMobil and Saudi Aramco, were approved to enter the domestic wholesale oil product market, marking the first time for licenses to be granted to companies with foreign investment.

So far, China has totally handed out 17 oil products wholesale licenses. Though most of these licenses were granted to domestic private companies, they still find hard to conduct oil product wholesale business without oil product source in hand. In fact, the same to foreign oil players if China's policy of strict controlling oil product import and export does not get loose.