SINGAPORE-Chinas admission to the World Trade Organization on Dec. 11, 2001 will bring down tariffs and trade barriers, and is opening the country to more direct foreign investment. Chinas oil industry is undergoing major restructuring and rationalization in order to compete, while BP, ExxonMobil, Shell and other multinationals are moving fast, industry executives told the 8th
Annual Fuels & Lubes Asia Conference here last week.
The greatest effects of Chinas entry into the WTO are in the areas of lowered tariffs and non-tariff trade barriers, and access to Chinas services marketplace, Li Run-Sheng, senior economist and vice president of PetroChina Co. Ltd., told the conference.
1. Management of the industry by the Chinese government will change dramatically. Regulations and laws are beingestablished now.
2. There is a long-term oversupply of processed (refined) oil products. The pursuit of market share will intensify competition.
3. Oil pricing mechanisms will change drastically. Prices will be set by the market itself rather than the government. (Production and marketing cost reduction shall be the key problem for PetroChina to face and solve, noted Li.)
4. The content of competition will multiply. Competition in the refining business will be omnidirectional, Li said. It will be in intelligence, technology, management and services.
5. Finally, pressures will increase to improve environmental protection and product quality.
Generally speaking, said Li, PetroChina has five years of transition at most to strengthen itself. In the refining area, Li said, PetroChina is focusing on integration of business units, upgrading facilities, improving distribution and product quality. We are shutting down small refineries in the PetroChina system, and we are rationalizing refinery assets, Li said, although he declined to disclose which refineries are slated to be closed. Since our IPO [April 2000], we have reduced refining capacity by 6 million tons. We will disclose information [about refinery closures] by 2005. Now we need to balance between refinery [output] and market demand … and adopt foreign refining technology.