China tells state firms to supply private oil refiners

The Chinese government has ordered the two largest state-controlled oil companies to supply crude to privately owned refineries and buy their fuel products to help end shortages of diesel and gasoline.

China National Petroleum and China Petrochemical were told to provide crude to private processing plants, so-called "teapot refineries," in northern and eastern provinces, the National Development and Reform Commission said Tuesday.

The largest energy consumer in the world after the United States is trying to ease its worst fuel shortages in more than two years that started in August during the summer peak demand period. Some nonstate refiners reduced output to avoid losses caused by rising crude oil costs and state curbs on gasoline and diesel prices.

China National and Sinopec, as China Petrochemical is known, must buy fuel products meeting state specifications from the privately run refineries, the top economic planning body said in a statement Tuesday. The government restricts the number of nonstate refiners allowed to import crude under current government rules and these companies typically process fuel oil into low-quality oil products.

The two state oil companies stopped rationing fuel at filling stations in Beijing, Shanghai, the southern province of Guangdong, and along major cross-province highways on Saturday, the commission said.

The authorities have "maintained market order" by cracking down on fuel hoarding and pricing irregularities. Once these measures take effect, the fuel supply will get back to normal "very soon," it said.

The commission fined six filling stations in the provinces of Sichuan, Guizhou, Ningxia, Shaanxi, Hunan and Hebei that sold diesel at higher prices than allowed by the central government, according to a statement posted on the commission's Web site on Wednesday.

China unexpectedly raised gasoline, diesel and jet fuel benchmark prices by as much as 10 percent effective Nov. 1 in what it called an "urgent" step to end fuel shortages. China controls fuel prices to limit their impact on inflation.
Santos approves gas venture

Santos, the third-biggest oil and gas producer in Australia, and its partners in the Henry natural gas field approved the 275 million Australian dollar, or $241 million, project to expand sales in the southeastern states.

The field, off the southeast coast, will supply fuel to the TRUenergy unit of CLP starting in the first half of 2009, Santos said in a statement to the Australian Stock Exchange. The project will include work to allow the connection of future discoveries at the Netherby and Pecten East wells, it said.

The Henry field will be connected into Santos's Casino gas project, which started production in February last year. The partners, including Australian Worldwide Exploration and Mitsui, started engineering work on the Henry development last December, when Australian Worldwide estimated the cost at 140 million dollars, about half of the budget given Wednesday.

"Henry is relatively high-margin despite those capital costs," said Andrew Blakely, an oil and gas analyst at Macquarie in Sydney. "The beauty of Casino and the upside capability of the asset is really Netherby and Pecten East. If they find anything there, then there's continuous upside to the availability of additional contracts."

"The Henry development will facilitate higher gas sales volumes and extend the production plateau from the Casino project facilities by several years," the chief executive of Santos, John Ellice-Flint, said.

The increase in the project budget was determined after design and engineering studies and comes amid a surge in costs for pipe-laying vessels, drilling rigs and other equipment, said Matthew Doman, a spokesman for the company in Adelaide.

"Industry cost pressures are well documented," he said.

Santos is due to drill the Netherby well in mid-2008, while the timing of Pecten East has yet to be determined, Doman said.

The Henry project is "a logical expansion of the Casino gas system," Bruce Wood, the managing director of Australian Worldwide, said in a separate statement.

Santos has 50 percent of Henry and is the operator, while Australian Worldwide and Mitsui, a Japanese firm, each have 25 percent. The field holds about 150 petajoules, or 141 billion cubic feet, of proven and probable dry gas reserves. Once the field starts up the combined production of Casino and Henry will be about 120 terajoules, or 113 million cubic feet, a day, Santos said.