Sinopec, Asia's top refiner, has called for a more
market-oriented oil pricing mechanism in 2007 after struggling last
year to refine more oil at higher cost for local consumption.
"A more market-based fuel pricing system will certainly benefit
our business by smoothing our operation," Huang Wensheng,
spokesperson for Beijing-based Sinopec, told China Daily
yesterday.
"I do not believe timing is the priority in making the decision,
but the determination of the authority is," he said. Because
pricing is government-controlled rather than market-driven, Sinopec
witnessed a huge refining deficit in 2006 due to a soaring crude
import cost and the low price of refined oil sold domestically.
As a result, the refiner recently received State compensation of
5 billion yuan as it continues shouldering responsibility for
processing crude oil to meet robust local demand.
In a public statement yesterday, Sinopec announced it processed
146.32 million tons of crude in 2006, up 4.56 percent over the
previous year. Oil products Sinopec delivered to the market reached
111.68 million tons last year, growing 6.81 percent over 2005.
"The output volume unveiled is in line with our original plan.
Despite the heavy loss, we still manage to refine more oil and to
source from third party suppliers for rising local consumption,"
Huang said.
Sinopec's output is higher than many analysts expected given the
huge deficit triggered by surging global oil prices last year, Liu
Gu, a senior energy analyst with Shenzhen-based Guotai Jun'an
Securities (Hong Kong) Ltd, told China Daily. He expects a
positive market reaction to the listed refining giant's output
announcement.
Although the refining output is up, the 4.56 percent growth rate
for Sinopec in 2006 is the lowest in four years. Processing volume
rose 5.3 percent in 2005, compared to 14 percent in 2004 and 10
percent in 2003, according to Bloomberg statistics.
"Under harsh market conditions, it is understandable for the
refiner to slow down refining growth and even to import oil
products from overseas to cover the deficit and to meet demand,"
Liu said.
Sinopec supplies around 80 percent of the fuels sold in China,
working under rigid price controls that limit fluctuations within
an 8 percent range.
As global prices soared in 2006 and import costs jumped, the
refiner saw its loss widen to 12.6 billion yuan in the third
quarter of 2006, compared to a 6.6 billion yuan loss a year
earlier. Sinopec imports about 70 percent of the crude oil it uses
for refining.
A more market-oriented oil product pricing mechanism would
certainly be a shot in the arm for the development of Sinopec, Liu
confirmed.
(China Daily January 19, 2007)