AD ALTA
JOURNAL OF INTERDISCIPLINARY RESEARCH
organized in such a way that, except for some of the largest
companies, there is a fairly tough divide between primary oil
production, its refining, and marketing of oil products. It is not
uncommon for companies that own oil refineries to show
financial insolvency with rising oil prices and lower refiners’
margins, and due to the impossibility of overflowing financial
resources between the links in the value chain within the oil and
gas complex, nothing can create a financial “pillow” for them.
As a result, another argument in favor of vertically integrated
companies in China, including all the links in the value chain, is
the ability to constantly maintain the required level of production
efficiency for them through the internal transfer of resources.
This, in turn, creates stability for a large number of employees,
supports the economy in the regions where companies are
present. (20)
The abolition of the Ministry of Geology and Natural Resources
was a significant milestone in the restructuring of the
management structure of the Chinese oil and gas complex. The
three largest companies after 1998 received more freedom of
action. The functions of public administration and control were
transferred to the State Administration of Petroleum and
Chemical Industries (SAPCI), which is subordinate to the State
Economic and Trade Commission (SETC). CNSPC acted as an
independent company for less than two years, at the beginning of
2000 it became a part of Sinopec as a division and was renamed
into Sinopec Star Petroleum Corporation (SSPC). (29)
Natural gas is produced by units of all three leading oil and gas
companies in the country. For example, in the Sichuan province
- the main gas-producing region of China - Sichuan Petroleum
Administration, a subsidiary of CNPC, is engaged in the
exploration, production, transportation, and marketing of gas.
Trade, export, and import of crude oil and basic petroleum
products is the responsibility of state-owned companies such as
Unipec (United International Petroleum & Chemical Co., Ltd),
Chinaoil (China National United Oil Corp.) and Sinochem
(China National Chemical Import & Export Corp.). At the same
time, Sinochem is a subdivision of the Ministry of Foreign Trade
and Economic Cooperation (since 2003 - the Ministry of Trade)
and specializes in export-import operations with oil and oil
products.
Thus, at present, China’s oil and gas industry is divided between
CNPC, Sinopec and CNOOC. The predominant position in oil
production is held by CNPC, controlling the oil fields in the
north, west, and east of China. In 2001, CNPC’s share of
China’s total oil production was 67% or 2.1 million barrels per
day. Sinopec (considering SSPC) produced 720 thousand barrels
per day, which amounted to 23% of the total production. At the
same time, it owns a large number of refineries and controls a
large part of the retail market for petroleum products. The
remaining 10% of oil production comes from CNOOC. The
imbalance between CNPC and Sinopec is the need for Sinopec
to buy crude oil from CNPC and for CNPC to sell petroleum
products in a market controlled by Sinopec — is a serious
problem for these two state-owned oil companies, especially in
view of the need to increase economic efficiency as main
argument in the restructuring of the oil industry in 1998.
4 Conclusion
It can be concluded that the vertically integrated oil and gas
companies that are created are not fully balanced in terms of oil
production and refining capacities, which, in the face of
insufficient maturity of market relations, will stimulate them to
further improve the structure, competition and expansion into the
“traditional” competitor markets (recall that in 1998, in CNPC
and Sinopec were combined mining and processing facilities in
two different geographical areas of China - the northern and
southern parts of the country). The current stage of corporate
restructuring in the oil and gas complex of China is associated
with the creation of three leading state-owned companies of
holding-type oil and gas business groups, consisting of a
complex of joint-stock companies and limited liability
companies. Part of the shares of joint-stock companies is
intended for circulation on the national and foreign stock
markets. (30)
The accumulated world experience in creating powerful
vertically integrated structures indicates that the oil company,
under any favorable raw material replenishment of its assets, will
never enter the world market as an equal participant if its
structure does not contain those components that determine the
possibility raising the technical level of own production,
financing (at least 50%) of new construction, guarantee the
production of a wide range of oil and gas products shoes and
petrochemicals. The effectiveness of structural transformations
in the oil and gas industry, the formation and effective
functioning of vertically integrated oil and gas companies, their
integrated use of oil and gas raw materials are noticeably felt on
the results of their production and commercial activities.
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