The two regulations stipulate that oil product wholesalers must have one-time annual crude processing capacity of over 1 million metric tons. And all applicants should own an oil product depot with a minimum storage capacity of 10,000 cubic meters. The previous restriction on the number of gas stations a private company must own has been lifted.

Although the market has been deregulated to a certain degree, the number of newcomers will depend on their profit-making capacity. China's current oil product pricing mechanism does not guarantee a decent profit margin and therefore is not luring new players, Niu said. The Chinese government keeps a tight grip on the pricing of major oil products, keeping the price below the global level to avoid supply fluctuation and inflation.

"China's oil-refining business is plagued by huge deficits because of the high crude price and the low domestic wholesale price. The current oil product pricing system does not encourage new wholesalers. Therefore, there might not be many newcomers in the short term," said a senior media official at Sinopec, Asia's top refiner, on condition of anonymity.

But in the long term, Sinopec must be fully prepared for tough competition, as further reform of the oil-pricing mechanism is expected, the official said.

"We do not believe a State-planned pricing mechanism would last as the market matures and energy prices are raised to curb consumption. Therefore, we have to be ready for market-oriented competition by figuring out every way to enhance our market share and lower costs," the official said.

Who benefits?

Given current market circumstances, it is not difficult to see who will benefit from the new guidelines and rules. Private firms cannot afford to enter the wholesale market as long as the current oil price mechanism is in place, restricting profits, said Han Xuegong, a senior consultant at CNPC.

Instead, State-owned energy giants, such as top offshore oil producer CNOOC and Sinochem, who are not after instant profits, will be the real beneficiaries, both Han and Niu from the SIC said.

"CNOOC will get its Guangdong refinery onstream very soon. Also it has large storage facilities ready. The opening up of the market is certainly positive news for CNOOC," Niu said.

Foreign oil firms will be also eager to seek wholesale oil licenses, because they have to feed their filling stations in China. Moreover, it would not be a difficult mission for them to meet market deregulation rules in terms of either storage facilities or refineries, said Dong Xiucheng, vice-dean of the School of Business Administration at China Petroleum University.

"But the key is they need time and approval to get these facilities ready. So they won't be as enthusiastic as CNOOC or the other State-owned giants," Dong said.

(China Daily 04/03/2007 page15)