Fo­cus: Qual­ity of fuel prod­ucts, ser­vices to get pri­or­ity

China Daily - - BUSINESS -

pas­sen­ger trans­porta­tion, in­ter­na­tional ship­ping, grain pur­chases and whole­sale busi­nesses.

“We be­lieve the lift­ing of re­stric­tions is def­i­nitely good news for the in­ter­na­tional oil and gas com­pa­nies, a pos­i­tive move that brings com­pe­ti­tion into the in­dus­try,” said Min Na, who an­a­lyzes the oil and gas in­dus­try for Bloomberg New En­ergy Fi­nance.

“With more com­pe­ti­tion, com­pa­nies will fo­cus more on their qual­ity of ser­vices and prod­ucts and cus­tomers can even­tu­ally also ben­e­fit from it.”

To en­ter China’s fuel re­tail sec­tor, multi­na­tion­als are ex­pected to take any of the routes from joint ven­ture, wholly owned new ven­ture or deal­er­ship that is ap­pro­pri­ate for the lo­cal mar­ket con­di­tions, Min said.

The prospects of fu­ture growth as­so­ci­ated with the lift­ing of curbs have en­thused oil firms. For in­stance, Royal Dutch Shell told China Daily any level play­ing field would cre­ate more space and op­por­tu­ni­ties for in­ter­na­tional re­tail­ers in China, and cus­tomers will have more op­tions to choose from.

“We will con­tinue to em­ploy joint ven­ture, wholly for­eignowned en­ter­prise or deal­er­ship models, which­ever are most com­pet­i­tive and best serve our cus­tomers,” the com­pany said.

Shell cur­rently op­er­ates more than 1,300 gas sta­tions in nine prov­inces and three mu­nic­i­pal­i­ties in China. Its foot­print cov­ers Bei­jing, Tian­jin, Shan­dong, He­bei, Shanxi, Shaanxi, Sichuan, Guang­dong, Zhe­jiang and He­nan, as well as the Hong Kong Spe­cial Ad­min­is­tra­tive Re­gion and the Ma­cao Spe­cial Ad­min­is­tra­tive Re­gion.

“We have proved that we can ef­fec­tively serve our cus­tomers to­gether with our joint ven­ture part­ners, as well as through our own op­er­a­tions. We will be happy to use any busi­ness models avail­able to us that will help us reach even more cus­tomers in the fu­ture,” it said.

Ac­cord­ing to Chen Cui­wei, Shell’s pres­i­dent of re­tail busi­ness in China, de­spite the cur­rent fierce com­pe­ti­tion in China’s gas sta­tion sec­tor, there is much room for growth com­pared with the scene in de­vel­oped coun­tries.

Based on Shell’s pos­i­tive brand rep­u­ta­tion in China and the in­creas­ing ve­hi­cle own­er­ship in the coun­try, the tim­ing is good for ex­pand­ing the scale of its play in the gas sta­tion sec­tor, she said.

Ac­cord­ing to ICIS, close to half of China’s 100,000 gas sta­tions are pri­vately owned. The ma­jor­ity, es­pe­cially in the north­ern mar­ket, have seen their sales and prof­its de­cline due to higher la­bor cost and stiff com­pe­ti­tion.

Against this back­drop, for­eign brands with their pre­mium tags and ex­pe­ri­ence in man­age­ment, and backed by deep pock­ets, have a pos­i­tive out­look for the coun­try’s pe­tro­leum re­tail mar­ket. The key to suc­cess, they be­lieve, is the right co­op­er­a­tive model.

Hanna Hofer, pres­i­dent of BP China Re­tail, said the com­pany be­lieves that a more open mar­ket will at­tract more in­vest­ment and, ul­ti­mately, ben­e­fit con­sumers with bet­ter qual­ity and more choices.

BP an­nounced ear­lier this year that it will part­ner with Shan­dong Dong­ming to add 500 fill­ing sta­tions in Shan­dong, He­nan and He­bei to its fuel re­tail port­fo­lio.

Bloomberg New En­ergy Fi­nance be­lieved more co­op­er­a­tion be­tween for­eign com­pa­nies and teapot re­finer­ies could be cre­ated un­der the new pol­icy. “We’d ex­pect more of this kind in the fu­ture,” said Min.

Ac­cord­ing to Min, the open­ing up of the gas sta­tion sec­tor would also bring more com­pe­ti­tion to the doorstep of Sta­te­owned oil com­pa­nies. The lat­ter have been dom­i­nat­ing China’s fuel re­tail, but once the mar­ket opens up, their profit mar­gins may fall in the short term.

As of now, how­ever, sales and prof­its of PetroChina and Sinopec dwarf those of pri­vate and for­eign com­peti­tors, said Li Yan, an an­a­lyst from Oilchem, an on­line tracker of the en­ergy and petro­chem­i­cals in­dus­tries.

By the end of this year, PetroChina will likely have 22,000 gas sta­tions na­tion­wide, or 22 per­cent of the to­tal, while Sinopec will own 31,000, ac­count­ing for 31 per­cent.

“These com­pa­nies are ver­ti­cally in­te­grated, and are ex­pe­ri­enced in op­er­at­ing in this in­dus­try. They still have their com­pet­i­tive ad­van­tage in the China mar­ket,” she said.

“In ad­di­tion, as the world’s largest auto mar­ket, de­mand in China is still grow­ing, and dif­fer­ent com­pa­nies could all ben­e­fit from a big­ger pie.”

Agreed Li Li, say­ing while many oil giants, in­clud­ing BP, Shell, ExxonMo­bil, To­tal, Chevron and Ros­neft, have been keen to en­ter China’s pe­tro­leum re­tail mar­ket in the past decade, the en­try thresh­old is much higher now com­pared with years ago. That’s be­cause China’s gas sta­tions have seen their val­u­a­tions soar in re­cent years.

While the an­tic­i­pated de­vel­op­ments may present more op­por­tu­ni­ties than chal­lenges for for­eign oil giants, in­stant ex­pan­sion right from the word go is eas­ier said than done, con­sid­er­ing that the ex­ist­ing play­ers have es­tab­lished them­selves for many years, se­cur­ing a good ge­o­graph­i­cal lay­out, she said.

Min be­lieved with more mar­ket play­ers, there could be more in­no­va­tion in the in­dus­try. “Some of the in­ter­na­tional oil com­pa­nies have ac­quired (elec­tric ve­hi­cle) charg­ing busi­ness. Shell’s has pur­chased Dutch-based NewMo­tion, the owner of one of Europe’s largest elec­tric ve­hi­cle charg­ing net­works. BP has ac­quired UK’s largest elec­tric ve­hi­cle charg­ing com­pany, Charge­mas­ter, which op­er­ates over 6,500 charg­ing points across the coun­try.

“Con­sid­er­ing that China is the world’s largest EV (elec­tric ve­hi­cle) mar­ket, this com­bi­na­tion of fac­tors could bring more in­no­va­tive busi­ness models to the in­dus­try in the long term.”

As elec­tric ve­hi­cle sales are ex­pected to boom around 2025, all gas sta­tions are ex­pected to see a slump in sales around that time. Multi­na­tion­als eager to en­ter China’s fuel re­tail busi­ness may want to fac­tor this as­pect in, she said.

We be­lieve the lift­ing of re­stric­tions ... brings com­pe­ti­tion into the in­dus­try.”

Min Na, se­nior an­a­lyst with Bloomberg New En­ergy Fi­nance

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