Royal Dutch Shell Plc  .com Rotating Header Image Shell China in Talks With Private Oil Companies

By Jing Yang
02 Jul 2007 at 11:13 AM GMT-04:00

SHANGHAI (Interfax-China) — Shell China is in talks with private oil companies to purchase their gas stations as one large group, but the private companies are asking for a price too high to accept, a Shell official told Interfax on the sidelines of an industrial forum held during the weekend.

“The private oil companies want to make a fortune out of this deal,” the official, who wished to remain anonymous, said. He also noted that British Petroleum, Exxon Mobil and Total were other possible parties to such a deal. 
Zhang Shunjie, chairman of Panjin Xinglong Petrochemical Industrial Company of northeastern Liaoning Province, confirmed previous media reports to Interfax late last week that stated that as many as 80 private oil companies from Liaoning, Hebei, Fujian, Xinjiang and Shandong provinces, including Zhang’s company, are negotiating with foreign companies for the group sale.

The private gas stations are asking for an initial sale price 40% higher than the value of their assets.

The assets include gas stations as well as supplementary oil storage facilities, Zhang said. Zhang’s company, for example, which was founded with a total investment of RMB 200 million ($26.3 million), has a 70,000-cubic-meter oil storage depot and 16 gas stations, its own port and an oil wholesale license.

The golden days of private oil companies saw an end when the Chinese government issued regulations in 1999 that resulted in the monopoly of the oil wholesaling business by China National Petroleum Corp. (CNPC) and China Petroleum & Chemical Corp. (Sinopec).

Local refineries were then ordered to only sell finished products to CNPC and Sinopec. The two oil giants, in turn, have tended to only supply finished oil products to their own gas stations, not private ones. “We have not been able to secure oil from them [Sinopec and CNPC] since then,” Zhang said. His company used to have an annual oil wholesaling volume of 400,000 to 500,000 tonnes before 1998, he said.

There are a total of 59,640 private oil trading companies in the country, including 3,340 in wholesaling, or 33.4% of the total, and 56,300 gas stations, accounting for 56.3% of the country’s total, according to the 21st Century Business Herald.

However, private oil companies are usually dispersed and will only be able to challenge the dominance of state-owned oil giants as a group, Zhang added.

Zhao Youshan, the president of the Petroleum Committee of the China General Chamber of Commerce, a trade organization for private oil companies, told Interfax that he supports efforts by the companies to be sold as a group to foreign companies, which he sees as them standing up for their own rights and survival.

Although Zhao agreed that the success of such a deal may result in an outward flow of state assets in the energy sector, he hoped the event could alert the central authorities to the seriousness of the problem. In fact, a proposal is now in front of the State Council to guarantee private oil companies supply of a certain amount of oil products each year. The amount asked for now stands at 20 million tonnes, according to local media.

Zhao believed the offer would look very attractive to international oil giants who are eager for a bigger presence in China’s oil industry. China is the world’s second largest energy consumer.

In addition, the Chinese government is expected to loosen its grip on oil product prices in the near future after the general realization that artificially low energy prices would not only lead to inefficiency in consumption, but would also hurt China’s interests in the long run, since the forecast of soaring demand from China due to its low prices has boosted and will continue to boost international prices for various energy resources. Almost half of China’s crude oil and natural gas supplies rely on imports.

When asked if he thinks the National Development and Reform Commission would intervene in the group sale effort, the Shell China official said that he believed the central government would not get directly involved in any market activities, but the NDRC can decide whether or not to issue the licenses a gas station needs in order to operate, a risk factor that foreign buyers would consider before making a decision.

“I think this much-hyped group sale plan is intended more as a means to increase pressure on the central government to break the monopoly in the industry,” the official said.

He also noted that a state-owned newcomer to the oil retailing sector, China National Offshore Oil Corp. (CNOOC), has also been active in buying private gas stations, though mostly in the Guangdong market due to the province’s proximity to CNOOC’s Huizhou refinery, which is scheduled to come on-stream in September of next year.

“If CNOOC really wants the private gas stations badly, it has more chances of getting them, as state-owned oil giants are able to offer bidding prices that are unbelievably high,” he said.

Shell China has been acquiring privately-held gas stations in China since 1998, and has a total number close to 400 nationwide. The company is only allowed to make such acquisitions in Beijing, Tianjin, Chengdu and Chongqing municipalities and in Guangdong Province. Its largest number of gas stations is in Guangdong with 43 stations, followed by Tianjin with 37, 11 in Beijing, 10 in Chengdu and two in Chongqing. The company holds controlling stakes in all the gas stations.

It will also increase its 300 gas stations in eastern Jiangsu Province to 500, with Sinopec as a majority stakeholder.

Shell China has not applied for an oil wholesale license yet, due to its lack of oil resources. The Chinese government has so far not allowed foreign companies to import oil into the country. In addition, the government has stipulated that all crude oil imports must be sold to CNPC or Sinopec for refining. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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