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China’s Oil Troubles

Chen Weidong, a Chinese oil services executive, has published a review of Michael Economides’s book about Yukos and the Russian oil industry on Energy Tribune.  The excerpt below is not about Russia, but it was the most shocking part of Weidong’s article.  Both Russia and China have avoided reforms to their state-owned energy sectors, posing some similar problems.

The revenue of ExxonMobil is more than the ones for CNPC, Sinopec and CNOOC, combined but the number of employees of those companies, combined, is 30 times more than ExxonMobil’s. Oil price has become internationalized; the price of oil products in China is higher than in U.S., indicating low efficiency and perhaps lack of competition. We all hope to improve the efficiency, but we are still not clear how this can be done.

China’s reliance on foreign oil is more than 50 percent and is increasing. However, our petroleum industry has been built on a “self reliance and self sufficiency” model. Half century has passed since that model, petroleum industry reform has been going 20 years, and yet our petroleum organizational frame is still confined by the state. Because of the recent good economic growth and profit, there has been not much motivation for further reform. The most important capital in petroleum companies consists of oil and gas reserves. During the last 30 years of reform, this capital had been transferred from the public to the companies and investors for free. The good performance of our petroleum companies might not be as good as it looks if reserves were considered, especially taking into account the crude oil and oil products price increase. The oil embargo made Brezhnev very happy and he thought that there was nothing to worry over the next 15 years and there was no need to reform the petroleum industry. But less than 15 years later, the collapsed petroleum industry brought the Soviet Union, a giant in appearance, with it. Hope this is just my imagined fear about China.