China's first step toward liberalizing its jet-fuel market would not end the monopoly of importer China Aviation Oil (CAO), but may lead to freeing up domestic prices, industry officials said.

The world's No.2 energy consumer would fully open up its jet-fuel sales and storage market to domestic competition from Aug. 15, in line with its goal to fully deregulate the oil sector by the end of next year, the Chinese aviation authority said.

“This regulation only allows domestic firms to enter the jet-fuel market. It has nothing to do with jet-fuel imports,” said an official of Civil Aviation Administration of China (CAAC).

“CAAC is not the regulatory body that can issue jet fuel import licenses or change the rules for imports.”

China's jet-fuel consumption is over 250,000 barrels per day (bpd), a third of which is imported, while the rest is secured from domestic refinery production. Demand is growing at nearly 10 percent as airline travel takes off.

China Aviation Oil Trading (CAOT) is the sole import agent of jet fuel into China, on behalf of contractual buyers such as China Aviation Oil Import & Export Company Ltd., Shanghai Pudong International Airport Import & Export Corp., Zhuhai Zhenrong Co. and Sinochem International Oil.

CAOT is a subsidiary of Beijing-based China Aviation Oil Holding Company (CAOHC), which owns nearly all the refueling facilities at China's 140 airports and controls about 70 percent of China's domestic jet-fuel distribution.

“It will not have much impact on CAOHC in the short term. We have decades of experience in the jet-fuel market, but for newcomers, it will take some time to build facilities and networks,” the official said.

China's top two oil companies, Sinopec Corp. and PetroChina, might also hinder other potential players from joining the fray.

Together with CAOHC, the parent companies of both Sinopec and PetroChina set up a joint venture last year to offer jet fuel to the Chinese airports, creating a strong competitor with most of country's production and distribution assets.

But market players harbored mixed feelings toward a potential move away from regulated prices to prices floating in line with the international market, which some observers expect to be the next step in deregulation.

Under the current system, the government sets the ex-refinery jet fuel price. In addition, aviation firms need to pay a flat fee of 440 yuan (US$54) a ton that covers storage and refueling.

“A change to the floating system is not the best option for Chinese carriers at a time of high oil prices. Carriers are paying less in the current system,” said an official from Air China, one of the country’s top three carriers.

“Domestic jet fuel is much cheaper than international levels.”

The government raised ex-refinery jet fuel prices by 300 yuan to 4,740 yuan a ton late last month, Chinese industry officials said.

(Shenzhen Daily August 10, 2005)