Name: Ouyang Hongzhi  Student ID: S08243
Research paper supervisor:Dr.Sekou Conde
Minzu University of China
2008-2009 Academic Year
 
Abstract
Middle East is the largest supplier of the world. North America, Europe and Asia are the three major oil markets of the world. With cars increasing every year, most of oil in China is imported from other countries. The more oil China needs, the more noticible the problems of the industry appears. China oil market is monopolized by the three giants(CNPC、SINOPEC、CNOOC). The price of refinery oil is up to them. People are anxious to break the monopoly with the help of govenment. The oil pricing system is not perfect. The price of refinery oil cann’t represent the price of crude oil. And the new oil pricing system is approved by most people. With the employing of new system, the price will be reduced in some extent. Due to historial issues, China lags behind in technology. The technology of exploiting oil need to be improved. It’s urgent to carry on a technical innovation. China can cooperate with other countries to exploit oil or import oil. What’s more, exploring new energy is the key solution. People can use wind, tide, solar energy and other clean energy in place of oil.
 
Keywords
Petroleum Industry  Oil Market  Oil Monopolization  Oil Pricing System  
Technical Inovation  Non-conventional oil Resources
 
1. Current Situation
1.1 Basical information
The petroleum industry includes the global processes of exploration, extraction, refining, transporting[1] (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics.
In the 20th century, a very long period of time, the world oil industry has been referred to as "the international oil capital" of the monopoly of the seven companies[2]. However, in the end of 20th, the oil industry has been restructed because of a significant drop in crude oil price sales .Then the seven companies became 4 giants, SHELL, Exxon Mobil Corporation, Total Oil and New BP.

 2006 map of world oil proven reserves[3]
North America, Europe and Asia is the world's three major oil markets, including Asia, the fastest-growing oil demand, but as Asia's main oil producing countries oil production has basically no growth, which the Asian countries from the Middle East oil imports significantly increased.

 The distribution of oil in China[4]
 In China, oil exploration has been below 5000 meters in depth. There is no oil more than 5000 meters. Oil is distributed in these areas: Daqing Oilfield in Northeast, Shengli Oilfield and Zhongyuan Oilfield in North China, Karamay Oilfield in Xinjiang, as well as the Bohai Sea and East China Sea.
January 5, 2007 enterprises of the Central Work Conference, SASAC Director Li Rongrong said that in 2006, with total assets of the central rate of up to 12.2 trillion yuan, the main business income of the year up to 8 trillion yuan, profits can be up to 720 billion yuan, up 700 billion yuan of taxes paid. Behind this group of figures, the petroleum and petrochemical, electricity and telecommunications monopoly industries accounted for the bulk of the profits. Only in oil, CNPC, Sinopec, and CNOOC ---three major oil companies, total assets amounted to more than 20,000 billion in 2006 sales revenue of more than 2000 billion yuan, and its total profits add up to central level about half of total profits.[5] From these figures above, we can have a knowledge that oil industry creats large income for the country.
Actually, CNPC、SINOPEC、CNOOC are the three giants of China. Any enterprise who need oil must purchase from the three giants. Only they have rights of exploring oil. In the north of China, the oil is supplied by SINOPEC, in the South of China , it is CNPC, and CNOOC charges of the sea.
1.2 Competition and corporation
(A) China's oil industry market structure
China's oil industry is divided into three main areas:
1), The production, import and transport of crude oil. They are basically monopolized by CNPC, Sinopec and CNOOC.
2), Oil refining, the market is taken up by CNPC, Sinopec and some local oil refineries scattered.
3), The wholesale and retail of oil products. Northern China is monopolized by CNPC, on the other side, Sinopec charges of southern China[6].
In these three areas, oil transport has a strong natural monopoly characteristics, but the production of crude oil and wholesale and retail don’t have natural monopoly conditions. There was no implementation of a reasonable justification for the administrative monopoly.
(B) Even if the market is monopolized by them, there is still fierce competition between the three giants.
Take the competition between CNPC and Sinopec for example. Before they divided the area in terms of right of exploring oil, the gas stations all over the country were disorded. There were both oil filling stations of CNPC and oil filling stations of Sinopec in a city. They wanted to seize the share of market. After dividing the area, oil filling stations took on some special characteristics. Oil filling stations of CNPC tended to appear in the north of China. Because they must cut the cost of transportation. No matter they choose where to build oil filling station, the cost of transportation is the most important factor. On the other side, most of Sinopec oil filling stations show up in the south of China.  
[7]
Not last, the two sides began a price war. One day, CNPC lowes the price of oil, Sinopec will low a little more than CNPC. There is a short abstract from Fujian News Net On March 3nd, 2009. [Ibid] “A new round of "price war" in refined oil started again. Following the price in Shanghai Sinopec, the reporter from the Shanghai Petroleum Marketing Company was informed that all of the oil filling stations in Shanghai from 10 o'clock yesterday morning, and all prices from 0.05 yuan / liter.” Actually, wars among the three giants never stop.
2. The problems in oil industry
There are still many problems in oil industry. Generally, they exist in 6 aspects.
2.1 relative shortage of resources, oil production, high costs in production and processing of oil.
According to the current situation, the conflic between the supply and demand of oil in China will be increasing sharply. Even if the volume of China's ultimate recoverable oil resources is measured by 160 × 108t, it only takes up 3.9% of the world.Per capita ultimate recoverable oil resources and production is only about 1 / 5 of the world's average level. Moreover, 3 / 5 of the recoverable resources has to be proven.[8] In China, the growth rate of oil consumption was significantly higer than the growth rate of production of crude oil. The gap of demand and supply will be larger and larger.
In the light of analysis of International Energy Agency (IEA) [9] :
The production of China crude oil will only reach 1.75 × 108t in 2010, and 1.85 × 108t in 2015. Ruling out the possibility of oil exports of our country, the shortage of crude oil  in 2010 will be 1.37 × 108t and 1.97 × 108t in 2015. In other words, more than 50% of China's crude oil supply will rely on imports.
At the same time, the production of most of the main oil fields has reached the mid-and late stage. The high cost of recovery is becoming more and more serious.Comparing with the world's largest petrochemical companies, the processing cost of petrochemical products appears significantly higher.
2.2 Low ability to innovate , and the overall technological level is not high.
With petroleum industry rapidly developing, technology has increasingly become an important factor of scale expanding, costs reducing and the competitiveness improving .
Although the output of refinery of the two groups: CNPC and Sinopec, is  greater than the total output of crude oil, many of the key technology and equipment in China also mainly depends on the introduction from other countries.
Generally, domestic refineries are small. Supporting devices have poor quality. And the structure of device is either irrational. The technological level and efficiency of resource use are relatively low. Comparing with the international oil services companies, there still remains large gaps in the overall level of technical equipment and services .
2.3 Operational mechanisms, and the productivity is very low.
The system defects and the historical burden of state-owned enterprises have not been fundamentally resolved.
After restructuring continually and coordinated reforms, although China has made great achievements in the establishment of modern enterprise system and the realization of step with international practice, there is [...]

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