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Window Phase of Oil and Gas System Reform: Oil prices rise again? Forget it!

When the international oil prices fell to /barrel, the national energy seems to fidget. ’Economic Observer’ was informed that last year in November and December, Energy Board organized and held several meetings to discuss oil price.

Not only the Energy Board officials attend the meeting, but also PetroChina, Sinopec and CNOOC —’Three Barrels of Oil’ as the representatives of oil company, and industry experts as well as some third party organization.

The topic of these meetings is to discuss the trend of international oil prices and future anticipation. In a meeting, CNOOC’s representatives believe that international oil prices will not be better in the first half of 2015 and moderate recovery is due to the second half.

In addition to CNOOC, the representatives of CNPC and Sinopec are not optimistic about the trend of international oil prices. Although the oil companies didn’t predictor of specifics, but in there view, the high oil prices may be gone forever. “At that time the judge is likely to further downwards in the first half. The main basis is several major oil producing countries led by Saudi Arabia bite and hold, no cut.” people involved in the meeting revealed.

Unlike the pessimism of oil companies, the third parties who participate in the meeting are relatively optimism. Their view at the time is that oil prices fell to /barrel was the ending.

The truth proved, the oil company’s fear become a reality. In January, international oil prices continue dropping, not only failed to hold /barrel, even dipped below /barrel. In more than six months ago, the international oil prices was above 0/barrel.

Data shows that, NYMEX crude oil future price fell below /barrel in January 6; Three days later, Brent crude oil prices fell below /barrel. Up to January 16, NYMEX crude oil future price of around ; Brent crude oil future price of around /barrel.

Although many interviewees judge trend of international oil price differently, put a different interpretation on plummeting oil prices, but relatively uniform point is, the international oil prices is difficult to have a big improvement at least in the next couple years. Perhaps, the high oil prices is really gone, low oil prices will be the new normal.



Over the past decade, in addition to 08-09 years, global most time is actually in era of high oil prices. Starting relatively late of Chinese oil and gas reform has been plagued by high oil prices spell.

In 1998, China conducted a large-scale reorganization to oil and gas industry. PetroChina, Sinopec, CNOOC was born in this reorganization. Since then, Chinese oil and gas industry has entered a “three barrels oil” era.

At the same time, the reform in the oil and gas, has also been put on the agenda. The experts recalled that after oil major reorganization, the reform of oil and gas field, the big direction is to promote the separation of government and enterprise, carry out market reform.

Especially after china join in 2001 WTO, in the oil and gas field on the introduction of market mechanism, reduce administrative intervention is considered to be the core of the reform in this area.

On 14~15th the December 2000, at that time the State Commission for Restructuring has held a workshops in Beijing about “Chinese oil and gas industry regulatory reform”.

At the meeting, Sinopec’s chief economist Liu Wenlong has proposed,to further improve the crude oil, refined oil pricing mechanism. For the refined oil mechanism, requirement more study on combination of Chinese refined oil consumption structure, to solve international markets delays and other issues.

Counselor of CNOOC Cao Yunshi suggested, petroleum and natural gas industry must take the road of market, introduction orderly competition mechanism, according to WTO rules and Chinese government’s foreign commitments, progressively cancel oil and gas exploration development and access restrictions of downstream market.

CNOOC insider said, The reform in the oil and gas field within the past ten years has not changed in the big direction, that is the market reform.

But since China joins WTO, the international oil price is also rising all the way. Especially from the beginning of 2007, global basic entered the era of high oil prices.

People close to the NDRC said, the problem caused by high oil prices, market oriented reform encountered many obstacles in the process of advancing, lead to a lot of reforms has not been completed up to this day, even some reform can not be implemented. “to refined oil pricing mechanism as an example, it can be said that more than ten years, the purpose of reform is to confirm with international, but now also failed to realize it” people close to the NDRC said.

China refined oil pricing mechanism changed many times, eventually formed a pricing mechanism in 2009, that is when the international oil price moving 22 working days and the average price changes more than 4%, can corresponding adjust the domestic price.

But the pricing mechanism failed to the international crude oil market. So in 2013, new refined oil pricing mechanism improve again, changed for “price adjustment period is shortened to 10 working days, cancel 4% amplitude constraint”.

The introduction of the pricing mechanism, mean refined oil pricing mechanism basically completed, change in the past “which do not fall down”,  “rose more or less” situation. In the past half year, domestic refined oil price according to international crude oil price, achieved “12 even fall”.

In addition to refined oil, the reform goal of natural gas price is also market-oriented, with international standards. But today, the natural gas price changes are still not able to complete. “Compare with refined oil price, natural gas price changes is more complex, involving broader. In the context of high oil price, if we implement it hardly, it means that the terminal gas price will certainly rise, one comes to price, the problem becomes complex.” people close to the NDRC said.

To this end, the NDRC drew up “three steps” strategy for natural gas price changes, implementation gradually. Currently, the natural gas price changes has completed the first two steps, expect will be finished the third step in the first half of 2015.

Another “credit” of high oil price is to create a powerful “three barrels oil”. Take Sinopec as example, in 2004, the total assets of Sinopec is 4600 billion yuan; To 2013, the total assets of Sinopec reached 1.38 trillion yuan. The net profit at the time of 322.7 billion, reached 671.79 billion yuan in 2013.

At the same time of a rise in international oil price, “three barrels oil” monopoly is in fact aggravate. The experts said, their certain degree monopoly, in return will form a resistance to the reform.

Sinopec petroleum exploration and development research institute advisory committee deputy director Zhang Kang said, the upstream oil and gas in a highly administrative monopoly, upstream monopoly restricts downstream market process.

An obvious example is reflected in the independent of oil and gas pipeline network. In china, the petroleum monopolist more than 70% crude oil pipeline and 90% natural gas pipeline.

In recent years, according to foreign experience, the reform pipeline independent oil company must be enforced, the competent authorities has made a plan. Early last year, the energy bureau issued 《oil and gas pipeline facilities fair opening and supervision method》,in an attempt to break the monopoly of CNPC, Sinopec in pipeline network field.

People close to the NDRC said, the reform in oil and gas pipeline network field will not be finished in a short time, although determining the reform direction, but it is difficult to implement. One of the most important reasons is received the resistance of Petroleum.

Petroleum insiders said, whether the pipe network or reforms in other areas, Petroleum is a company, and sometimes must be responsible to shareholders.



If the period of high oil prices, reform of oil and gas field suffer a lot of resistance, so in the present oil price, reform opportunity seems to come.

Xiamen University energy economy research center director Lin Boqiang said, now is a good(reform) time, competent authorities should make good use of this window, to accelerate reforms in the oil and gas field.

Platts China area editorial department director Lu Bin said, some Asian governments are using low prices of refined oil market environment to promote the reform of oil, whether through reduction of subsidies, elimination of price control or open private investment way.

“It’s time for the government to allow prices reflect the the supply and demand of domestic and international oil price balance. To achieve this point, first the government should cancel or reform crude oil import quota and refined oil export quota. ”Lu Bin said.

China University of Petroleum, director of the China Oil and Gas Industry Development Research Center Dong Xiucheng suggested, should accelerate the launch of 《oil and gas law》.

In fact, in the early 2000 seminar held “Chinese oil and gas industry regulation system”, Petroleum deputy general manager Zheng Hu suggested pay attention to the legislative work of the upstream oil and gas industry field, including quickly formulate and promulgate 《petroleum law》, 《oil and gas law》.

In November 15th, Chinese Premier has chaired a State Council executive meeting, arrange accelerate promoting the price reform, allow greater market pricing, clearly pointed out, price reform will affect the whole body, is an important content of promoting market oriented reforms and transformation of government functions.

After that, People close to the NDRC said, natural gas price changes will continue to accelerate. The latest plan is, the “third step” could be ahead of schedule and completed in the first half of this year.

According to the original plan, China natural gas price reform “third step” is to strive to be completed before the end of 2015, gas prices will be in line with international standards, will no longer divide the stock gas and incremental gas.

The sources said, after completion of “third step”, may continue to deepen reform, completely market oriented the natural gas prices.

The reform direction of oil and gas field is very clear, that is market oriented, worry too much when high oil prices, only take it easy. The current oil price level can be said is a good time to reform.



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