Sinopec May Cut Deliveries to Privately Run Gas Stations

State-owned China Petroleum and Chemical Corporation (Sinopec Corp) is considering halting fuel sales to private gas stations in some parts of the country, representatives from the company told the National Business Daily on Friday.

By cutting deliveries to privately owned gas stations, their competitors in the downstream market, Sinopec aims to meet the expanding demands of its own growing network of fueling stations, while at the same time pushing up its sales revenues in a move to offset losses from its refining business.

The oil giant has been curtailing its fuel wholesale operations for the past year, Li Zhoulei, a crude oil analyst for Shanghai Cifco Futures, told the Global Times.

Last year, Sinopec reduced the wholesale deliveries of fuel to privately held stations by 13.53 percent, while revenues from its own gas stations grew by 14.39 percent during the same period, according to a financial report issued by the company on March 25.

This report also showed that Sinopec lost as much as 37.6 billion yuan ($5.96 billion) from its refining business last year, a loss which heavily contributed to the company's 5.1 percent decline in overall net profits during 2011. In contrast, Sinopec's refining business turned a 14.9 billion yuan profit in 2010.

Sinopec has been expanding its network of gas stations, as a way to support its cash-strapped refining business, Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, told the Global Times.

As of the end of last year, Sinopec was operating 19,362 gas stations in China, a 7.6 percent increase year-on-year, according to figures from the company.

Sinopec is unlikely to stop its fuel wholesale business nationwide, as China's oil giants are required by government mandate to supply fuel to private gas stations, said Lin.

Yet the realization of Sinopec's plan would inevitably intensify the oil giants' retail fuel monopoly, contrary to government efforts to bring more privately run gas stations into the domestic market, Li said.