* Sinopec, PetroChina control 90 pct of crude imports
* Gov't weighs Sinopec's global clout over benefits of
* Political connection may have helped ChemChina win permit
* Crude imports may hit 9 mln bpd in 2020, 70 pct more than
By Chen Aizhu
BEIJING, Nov 27 The entry into China's tightly
controlled crude import market by small refinery operator
ChemChina marks a modest reform, but there is little sign that
Beijing is ready to open the door wider to competition for the
world's second-largest oil market.
China's demand growth over the past decade has been a major
factor in a long-term oil rally that has taken Brent crude
above $100 a barrel and kept it there for most of the
past two years. Crude imports into China will rise toward 9
million barrels per day (bpd) by 2020, according to industry
estimates, from about 5.3 million bpd now -- already nearly 6
percent of global supply.
Rising fuel demand would present a potentially lucrative
opportunity for global oil majors and traders if the market was
open. For Beijing, the advantage of more domestic competition
may be to push the powerful state-run duopoly of Sinopec Corp
and PetroChina to keep fuel supply abundant
even when refining margins are poor.
The price Beijing would have to pay for wider reform may,
however, be too high, industry sources say. It would weaken the
two firms' clout in global crude markets and make their task of
securing China's strategic oil supply tougher.
"The big majors are performing a very important role for the
state in terms of securing energy resources from abroad and
keeping the market supplied," said an industry veteran who used
to work closely with Sinopec.
"This is another reason why their interest should be
protected and they will continue to assert critical influence on
Sinopec and PetroChina control 90 percent of China's crude
imports. Sinopec is Asia's biggest refiner and its trading arm
Unipec buys most of China's crude imports. PetroChina mostly
refines domestic crude output of around 4 million bpd.
ChemChina is the operator of several small refineries known
as teapots, and with other similar operators has long pushed for
a more open crude import market. It won an import quota for 10
million tonnes for 2013, joining a market dominated by Sinopec
and PetroChina since an industry revamp in 1998.
The political connections of ChemChina's chief executive,
Ren Jianxin, a former communist youth league leader, may have
helped. Ren is from the same political camp as President Hu
Jintao and the premier-in-waiting Li Keqiang.
"This could be a departing gift from Hu for a fellow youth
league leader Ren," said a Beijing-based industry executive.
That could mean the chance of independent refiners winning
any other permits may depend more on the political sway of
individual aspirants than any drive from Beijing for a freer oil
market, industry and trading officials said.
The line-up of China's new leadership -- the seven-member
Politburo Standing Committee -- which excluded the more
reform-minded candidates, could mean reforms across the economy,
including in energy, will be slow.
"I don't think the issuing of these permits necessarily
signals that the government is about to do anything radical very
soon," said Philip Andrews-Speed, Principal Fellow at Energy
Studies Institute of National University of Singapore.
"Indeed, it allows the government to say 'you see, we are
doing something', but really it may just be cosmetic."
Even with his connections, winning the licence took three
years of lobbying for Ren, whose western-influenced management
style has won him foreign backers. Private equity firm
Blackstone invested $600 million for a 20 percent stake in
ChemChina's chemical division in 2007.
China, which could overtake the United States as the world's
top oil user by 2020, controls crude imports tightly to keep
domestic oil supply stable. The government considers it easier
to work through two state firms whose primary task is to
guarantee supply than to deal with many competing importers.
Sinopec and PetroChina would resist any major reforms in the
crude import system, and represent a powerful political force.
Between them they contribute over a tenth of the dividends to
Beijing's coffers from the more than 110 state-owned enterprises
combined, a Sinopec official estimated.
Other small refiners will be encouraged by ChemChina winning
a permit despite the obstacles to winning permits. Teapot
refiners have total capacity to refine around two million bpd,
nearly 17 percent of China's total refinery capacity of 12
A permit to import crude means smaller oil refiners can cut
costs and better compete in fuel retail. Without an import
licence, they rely on fuel oil as a feedstock, which produces
less high value fuels such as gasoline and diesel and limits
their flexibility to match output to demand.
Sinochem and CNOOC, parent of offshore oil producer CNOOC
Ltd, both run smaller plants similar to ChemChina, and
would covet import permits to bolster their refining business.
Others include privately-run, Hong Kong listed Brightoil
Petroleum, a bunker fuel trader with ambitions to
extend into crude business.
(Additional reporting by Luke Pachymuthu in Singapore; Editing
by Simon Webb)