[October 26, 2006]

BP, Shell Opening 1,000 Gas Stations in East China

(SinoCast China Financial Watch Via Thomson Dialog NewsEdge) ZHEJIANG, October 27, SinoCast -- Global energy giants BP and Royal Dutch Shell are each erecting 500 service stations under the alliance with Sinopec, Asia's top oil refinery. The two foreign players have already set up oil sales joint ventures with Sinopec to prepare for the gas stations thanks to Beijing's WTO commitments of opening the product oil retailing market at the end of 2004. The venture between Shell and Sinopec kicked off in August 2004 as the Anglo-Dutch oil group's first product oil sales subsidiary in China. The total investment hit roughly CNY 1.5 billion, of which CNY 830 million is the registered capital. Based in Jiangsu, a Chinese province in the east, it was designed to build 500 gas stations mainly in cities of Suzhou, Wuxi and Changzhou. Meanwhile, the venture between BP and Sinopec is based in Zhejiang Province, which is also along China's eastern seaboard. The investment amounted to CNY 2.1 billion, one third of which is the registered capital. It was scheduled to open 150 service stations in Hangzhou, the capital of Zhejiang, and Ningbo, a major city of Zhejiang, each year since the establishment and lift the total number to 500 in three years. Government-backed Sinopec owns a 60 percent stake in both joint ventures and its foreign partners the remaining respectively. Sinopec is also the sole oil provider for these gas stations. By December 2005, Sinopec had run 29,647 gas stations in China, 2,280 of which were franchised ones. The annual average fueling charge for each station exceeded 2,321 tons, up 16 percent from 2004. Its archrival PetroChina by last December owned up to 18,164 such stations, inching up 4.4 percent year on year. PetroChina has for years promoted the settlement in IC cards which makes it more convenient for both stations' operators and customers. The state-owned PetroChina in May 2004 signed an agreement with BP to offer the product oil business in Guangdong, a southern province bordering Hong Kong. They planned to erect a joint venture and to operate 500 service stations there via direct establishment and acquisitions over the following three years after the venture's inception. The project is to cost altogether CNY 4.7 billion or so with a 30-year operation. Among China's about 85,000 service stations, Sinopec has owned as many as 55 percent and PetroChina 32 percent. Foreign players, including BP and Shell, have only less than 5 percent of the total by the two. Still, as the country is to fully open the product oil wholesales market by the yearend, foreigners are expected to strive for a bigger slice. Reportedly, PetroChina's parent China National Petroleum Corporation is now talking with Lukoil, Russia's largest oil company, to build more than 100 gas stations in the Chinese Northeast region which consists of three provinces, Heilongjiang, Jilin and Liaoning. Once it succeeds, Lukoil is to be the second Russia's oil company to enter China's oil retailing market but also the first Russia's oil company to erect gas station in China. Oil maker Rosneft from Russia this March signed an agreement with PetroChina to explore oil in Russia, build joint venture refinery and sell oil products in China. The project is estimated to need a USD 2 billion investment and refine 10 million tons of crude oil each year. Still, they have had no plan to set up gas stations in the world's most populous nation. (USD 1 = CNY 7.9)

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