China fights fuel shortage with subsidies

Refineries are reluctant to raise output due to low government-controlled domestic fuel prices. Experts have said government should reform the oil price mechanism to reflect international levels and allow oil firms to transfer the rise to customers. But the government is wary of embarking upon such a move to pass the rise to customers, with the inflation rate already reaching 6.5% in October, equaling an 11-year monthly high of the August figure.

The National Development and Reform Commission (NDRC) said the government would offer oil firms some profit rebates and scrap oil import duties to compensate them for losses at their refinery units. For the first time in 17 months, China raised prices of gasoline, diesel and aviation kerosene by almost 10% to help oil firms cut losses caused by the gap between soaring international crude prices and state-controlled prices at which they have to supply in the domestic market. Oil refineries are still suffering losses despite the 10% fuel hike allowed by the government and many local refineries have either halted or reduced output, affecting fuel supplies, particularly diesel. Some gas stations were still without supplies or only provide limited supplies, the NDRC said.

With its economy recording sizzling growth, China’s oil consumption too has been rising rapidly with its crude consumption jumping 6.8% year-on-year to 173.03 million tons in the H1 of 2007, official figures showed. China’s two oil giants PetroChina and Sinopec, which account for most refining and fuel sales, are running at full capacity to increase output, especially that of diesel and trying to draw on stocks as much as possible.

The NDRC has ordered local authorities to step up market supervision and crack down on gasoline retailers withholding stocks and raising prices without government authorization. The Chinese Ministry of Commerce has also asked the local authorities to put in place an early warning system to tackle fuel shortages at filling stations. It said the local officials should closely monitor the oil market and take steps to deal with emergency fuel shortages. (Petrolplaza)