Sinopec to form its own oil fleet

Nov 18, 2003 01:00 AM

The leading Chinese oil refining group, Sinopec, has recently tightened its grip on a fledgling ocean oil shipping company. The move is seen as a reflection of the Chinese government's growing concern that the country depends too much on foreign oil carriers.
The company, the Nanjing Water Transport Industry Co. (NWTIC), is the listed vehicle of the largest domestic river transporter, the Nanjing Tanker Corp. The parent company, along with the China Merchants Group, the China Shipping Group, and the China Ocean Shipping (Group), carry all the Chinese government's hopes of forming an oil fleet belonging to China alone.

The predicted oil ocean-shipping capacity of NWTIC stands at 422,000 tons, a representative of the company, Zhu Shuanglong, told. Sinopec's stake in NWTIC was previously dispersed amongst 25 subsidiaries, each holding a small share. These holdings have now been centralized, making Sinopec the second largest shareholder in the company, with 19.44 % equity.
Additionally, the top refiner has taken over the right to nominate senior managers and board members in the company, and has already successfully installed a new board director and a new deputy general manager, said Zhu.
"Sinopec's aim is to strengthen cooperation with us," said Zhu.

According to him, Sinopec does not seem interested in making financial gains from the prospective oil carrier, as the right to claim profit shares still rests with the subsidiary companies. Expected by the International Energy Agency (IEA) to replace Japan as the second largest petroleum consumer in the world, China is very likely to see its oil imports rise from 70 mm tons in 2002 to over 100 mm tons in 2005.
However, the country's ocean oil shipping capacity is still in poor condition, and over 90 % of the oil imported to the country was carried by foreign vessels, according to official media. The China Shipping Group (CSG) and the China Ocean Shipping (Group) Corp. (COSCO), the two local shipping giants, only have a weekly cruise to the Middle East, which remains the country's largest foreign oil source.

Worried about the weakness in offshore oil shipping and the threat it poses to China's oil security, central government authorities convened with the four domestic shipping majors, CSG, COSCO, China Merchants Group and the Nanjing Tanker Corp., earlier this year, and discussed how to create China's own large-scale oil shipping fleet.
In September this year, Sinopec formed an alliance with CSG to jointly transport foreign oil and establish imported oil reserves. A joint venture between the two is in the works and will be unveiled in a few months time.

NWTIC is the latest partner chosen by the oil refiner, which is also the largest imported oil consumer in China, accounting for 70 % of the total. So far, NWTIC has launched three tankers, each with a capacity of 46,000 tons and capable of carrying both crude oil and refined oil products. The tankers are still mainly limited to near-shore shipping though, and they mainly shuttle between China, Singapore, Japan and South Korea to deliver oil products.
But the shipper has five more tankers under construction. Two of them, each with a 73,000-ton capacity, will be used solely for crude oil shipping, and the other three will be of dual-purpose and have a 46,000-ton capacity each.

Not far behind, PetroChina, the largest oil producer in China, entered into a framework agreement with COSCO in March this year on the creation of a joint-venture shipping fuel supply company.
The other local shipping giant, the China Merchants Group, heavily engaged in Hong Kong, has been cooperating with Sinopec on bringing in foreign oil by sea, especially oil originating from the Middle East.

Source: Interfax
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