Wednesday, July 7, 2004
China's oil boom has the world lining up for a pie
TIMES NEWS NETWORK
SINGAPORE: China's oil boom is drawing a new wave of foreign companies to open offices on the mainland or boost their Chinese business from Singapore to grab a slice of the world's second-largest oil consumer.
China is soaking up nearly 40% of incremental global oil demand to feed double-digit growth in domestic consumption, and is starting to open up its multi-billion-dollar state-dominated retail market.
Brazilian oil and gas firm Petrobras, European trader Trafigura and Singapore trader Hin Leong are the latest to set up operations in China to market crude and trade oil products. The Prime Minister of Kuwait, which is keen to sell more crude oil to China, is in Beijing this week and officials from Kuwait Petroleum have said the state-run firm is poised to set up an office in the capital soon.
"China is in dire need of both physical oil supplies and risk management to cope with surging demand and price volatility," a Beijing-based western trader said. "Being physically close to them means you have a better and deeper understanding of their needs," he added.
Although China is not fully ready for derivatives trading, global investment banks are building China teams based in Singapore, Asia's oil trading hub, while keeping tabs on the re-launch of fuel oil futures in Shanghai next month.
US banks Morgan Stanley and Goldman Sach's J Aron, French banks BNP Paribas and Societe Generale, and Deutsche Bank are among the most active houses selling risk management expertise to China.
China is expected to open its retail petroleum sector to foreign players from the end of this year, followed two years later by the more competitive wholesale business, as a commitment to the World Trade Organisation (WTO).
State oil companies Sinopec and PetroChina together control almost 90% of the wholesale market and about 60% of the retail sector. But early birds such as BP and Royal/Dutch Shell have been building marketing teams in eastern and southern China to run hundreds of petrol stations through strategic alliances with the two Chinese giants.
"It's like crossing the river by feeling the stones. You' ve definitely got to be here to understand the rules," said an Asian trader recently posted to one of China's largest import terminals, citing a phrase used by late leader Deng Xiaoping. Oil majors and traders are streaming into the eastern seaboard to build or rent oil depots, essential assets for trading and distribution.
BP, in a tie-up with a local firm, is expected to start up a 12.7m cubic foot tank farm in Guangdong by the end of '04, its first such investment. BP's $86m investment came after Chevron Texaco, Shell and trader Glencore leased storage in Guangdong in '02.
Independent oil services firm Titan, founded by Tsoi Tin Chun, a former small-town oil dealer from Fujian province, is pumping more than $60m into oil and petrochemicals storage in Shanghai, Guangzhou and Quanzhou. Banking sources said global institutions were waiting for the Shanghai Futures Exchange to establish a fuel oil benchmark market before setting up offices in China.
In preparation, international banks have hired western-educated Chinese nationals in their early 30s, experienced in oil trading, industry sources said. "The amount of oil China is buying is going to have a greater impact on the global market. No one can afford to miss that market," an energy risk management manager at a European bank said.
China's record crude imports of an average 2.5m barrels a day so far this year are spurring refiners, power generators and shipping firms to hedge purchases against volatile international markets, which saw US crude soar to a 21-year high in June at over $42 a barrel.
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