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China to consolidate refining sector: energy chief

(Agencies)
Updated: 2009-03-05 19:53

China will consolidate its refining sector as small oil refineries will either be forced out of business or be taken over by majors, the country's top energy official said on Thursday.

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The comment from Zhang Guobao, head of the National Energy Administration (NEA), comes amid falling fuel demand in the world's second-largest oil consumer, which is pushing for its State-owned oil majors to build new and bigger refineries.

"One scenario is that these small plants will not be able to survive with changing oil prices; or they may be acquired by big national oil companies," Zhang told reporters.

China's small oil processors, in the number of nearly 100 and deemed inefficient and polluting, have survived rounds of the government's consolidation attempts in an oil market that has suffered frequent shortages in the past decade.

Zhang also said the government will not change the current windfall tax on domestically produced crude oil.

Oil firms PetroChina and Sinopec Corp had hoped the central government would raise level at which the tax levy kicks in, from $40 barrel, or even cancel the levy when global oil hovered near $140 last summer, to help firms make up for their heavy losses in the refining business.

Now that oil has fallen back to near $40 a barrel, the call for change of the tax mechanism becomes less pressing.

"There are disagreements on how to change the tax, the Ministry of Finance wanted to keep it, some others proposed to raise the levy point, while oil firms hoped to call off it," Zhang said.