SOCIALIST MARKET ECONOMY:
ENERGY
C H I N E S E P E T R OL E U M I N D U S T RY
S I N O P E C C O R P S I N O P E C C O R P.
CHINA PETROLEUM & CHEMICAL
C O R P O R AT I O N
SOCIALIST CHINA
 Chinese petroleum industry is controlled by 3 major
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players all of whom are state owned incl. CNOOC,
CNPC (PetroChina), Sinopec;
Over the years China has retained firm control of key &
strategic industries in the country;
These industries have been under absolute state control:
power generation
Mining i.e. Coal
Oil & Petrochemicals
Telecommunications etc.
COMPANY BACKGROUND (SINOPEC)
 One of the largest integrated energy and chemical company in China
 China Petroleum and Chemical Corporation (Sinopec Corp.) is the largest
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refiner and petrochemical producer in China.
Public company listed in Hong Kong, New York, London and Shanghai
Parent company is state-owned China Petrochemical (Sinopec Group),
Government of China controls about 75% of the company through the
Sinopec Group.
Its businesses include:
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oil and gas exploration and production;
crude oil processing;
oil products trading,
transportation,
Distribution and marketing;
petrochemicals manufacturing.
owns more than 29,055 gas stations 643 franchises
COMPANY PERFOMANCE
Turnover
1,600,000
GROSS PROFIT MARGIN BY
PRINCIPAL OPERATIONS BY SEGMENT
35.0%
1,400,000
30.0%
1,200,000
25.0%
GROSS
PROFIT
MARGIN
20.0%
1,000,000
15.0%
800,000
10.0%
600,000
5.0%
0
2005
2006
2007
2008
2009
Turnover 824,005 1,061,58 1,205,86 1,495,14 1,345,05
-15.0%
Others
-10.0%
Marketing &
distribution
200,000
Chemicals
-5.0%
Refining
0.0%
Exploration &
Production
400,000
PROFITS & RETURNS
RETURNS
PROFITS
25.00%
90,000
80,000
20.00%
Percentage
70,000
60,000
15.00%
50,000
10.00%
40,000
30,000
5.00%
20,000
0.00%
2005
2006
2007
2008
2009
Return on
Capital
12.50% 12.58% 11.66% 5.15% 11.13%
Employed
Return on Net
19.31% 20.30% 18.16% 8.70% 16.33%
Assets
10,000
0
2005
2006
2007
2008
2009
Operating Profit 71,517 81,250 85,496 26,336 84,431
Profit
43,743 53,773 55,914 28,525 61,760
COMPETITORS
 Exxon, BP and Royal Dutch/Shell
 However foreign companies have established
strategic partnerships with Chinese
companies
 Intra-competition among the SINOPEC Group
of companies
 20,000 private / Independent gas stations
 SPC has managed competition well because
of the government's price controls and its
proximity to large customer base
SUPPLIERS
Coal Suppliers
Company Logo
Supplier Name
SDIC Xinji Co., Ltd
Yangquan Coal Industry (Group) Co., Ltd
WanBei Coal-Electricity Group Co., Ltd
Other suppliers
 China Shenggui Valve Co.,Ltd
 Aquachem Industrial Limited
 SINOPEC Yizheng Chemical Fibre
Co., Ltd.
 Sinopec International
Pingdingshan Coal (Group) Co., Ltd.
 Guangzhou Taida Steel Tube Co.
Jiangsu Xuzhou Mining (Group) Co., Ltd.
Huainan Mining (Group) Co., Ltd.
Shenhua Energy Co., Ltd.
Ltd.
 Jiangsu Sunchem New Materials
Co.,Ltd
CUSTOMERS
 Lube products used by
 aviation,
 spaceflight,
 nuclear industry,
 electronics,
 military weapons,
shipping,
 automobile,
 mechanical processing,
 metallurgical,
 refining, chemical, and
instrumentation areas
 Asphalt products
 motorways, urban public
roads, airport runways,
racing tracks and bridge
pavements
 railway
Industry Key Success Factors
Category
Key Success Factors
Integration
•Vertical integration is more successful
Innovation
•Research and development
•Technological advancement
•Ability to advance in new areas
Management
•Adaptable management structure
structure
•Efficient management structure
Marketing and
•Proximity to the market
Distribution related
•Strategic partnerships and linkages are critical.
•A solid track record
•Experience of company personnel to undertake work
•Fast technical assistance and Customer satisfaction
Skills and capability
•Skilled workforce is a major KSF in the sector
related
•Communication with client
•Short delivery time capability and constant liaison with clients
SINOPEC KEY SUCCESS FACTORS
 integrated upstream, midstream and downstream
operations
 strong oil & petrochemical core businesses
 complete marketing network
 established a standardized structure of corporate
governance
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adopted a management system of centralized decision-making,
delegated authorities at different levels and
Business assets and principal markets are located in the east,
south and middle part of China, where China's most developed
and dynamic economy lies.
• business operations handled by specialized business
units
CHINESE FEATURES / SOCIALIST STATE
1978 Deng Xiaopin
• Introduced a program of market socialist reform;
 China has since grown & became a regional & global
economic force;
 China has recorded double digit real GDP growth since
1980’s;
 China is said to be contributing app. Half of the Asian
GDP;
 Since the reform, GDP rose from 150 Billion USD to
more than 1.6 trillion USD;
 Under this regime private sector share of GDP rose
from less than 1% in 1978 to app. 70% in 2005.
2005 MARKET REFORM
 Privatisation was almost halted / partially
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reversed;
All strategic industries were consolidated into
SOE, the rational being to increase international
competitive national industries;
There are about 150 or more large SOE
reporting to Govt.
SOE’s contribute to increased state revenue.
Private ownership is in the main restricted to
secondary & service industries.
CHINESE FEATURES
 Macroeconomic policies and government regulations
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government is liberalizing the market entry regulations on petroleum and
petrochemicals sector
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Sector is subject to entry regulations to a certain degree
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Including issuing of licences
Setting maximum retail and distribution prices for diesel, gasoline & jet fuels
Imposing of special levies, tax and fees
Formulation of quotas for import and export
 Exchange Rate:
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China implements an administered floating exchange rate
regime based on market supply and demand with
reference to a basket of currencies in terms of the
exchange rate of RMB.
Participation of Multi - Nationals
•Partnerships have been established with SHELL &
BP in the main. SOE still dominant
Market Share of the petroleum industry
2%
7%
8%
State owned 44%
43%
13%
Sinopec 28.2%
PetroChina 12.9%
CNCP 7.7%
27%
Joint Venture 7.3%
Multi-National 0.2%
OPPORTUNITIES
 China has largest automotive market 1,3 billion
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people;
2nd Largest oil consuming nation;
China is concerned with energy security & has vested
interest in cleaner & efficient fuels;
Country is leading in key alternative fuels research &
govt. is investing billions in R&D;
Govt. intends to deregulate the sector to address
chronic inefficiencies of current distribution.
Opportunities exists for foreign oil companies to join
forces with the 3 local oil companies on upstream &
downstream.
CONCLUSIONS
 The petro-chemical industry is amongst the strategic
industries controlled by he state;
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More especially the upstream activities
Multi-nationals are allowed some in downstream activities
 Since China is not well endowed with crude oil
resources, the govt favors meaningful partnerships
with other govt & multinationals in oil rich countries;
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Technological investment
Financial investment
 Opportunities for foreign companies exist in green
technologies, JVs & partnerships
End!
THANK YOU ALL!