Adding fire of technology to gasoline trade
Anticipated entry of MNCs to herald quantum leap in gas stations' offerings
Insiders of China's fuel retail industry are an excited lot these days, and they use an analogy to describe what they see as the coming epochal change.
Imagine, they said, an old banger morphing into a glamorous, irresistible, state-of-the-art mean machine, and it would help you to visualize plain-Jane filling stations transforming into shiny, gleaming modern metal-and-glass structures.
They would offer not just eye-pleasing design and architecture but an array of enhanced products and value-added services - stuff that could potentially alter lifestyles, transform the industry and support economic growth.
China's 100,000-station gasolene retail sector is set to transition to the digital age on the back of deepening reform and opening-up, industry insiders said.
Conceivably, cars will run on better-grade, additive-enriched, mileage-boosting, if pricier, gasolene. Instead of a dreary ambience and uninspiring staff, filling stations will sport bright looks and might unleash shapely and energetic vehicle cleaners with foam sprayers and sponge mops the moment motorists roll into their premises.
What's more, there will be convenience stores, fast-food kiosks, shopping arcades, even mini cinemas. Oh, there will be fuel too. And the time and distance between any two fuel outlets could shrink substantially as they mushroom all over.
Details are still hush-hush, but what insiders see coming are entry of multinationals, mega investments and stiffer competition. As a larger number of players vie for the same pie, consumers may benefit in terms of services getting cheaper and better. All this will likely compel State-owned oil behemoths to shape up or ship out.
Global energy giants Royal Dutch Shell plc and BP are expected to invest more in gas stations in China as the government lifted restrictions on foreign investments in the sector on June 28.
The removal of policy barriers is part of the National Development and Reform Commission and the Ministry of Commerce's new "negative list" that eased restrictions in various sectors including banking, automotive, commodities and agriculture.
Opening up of the fuel retail sector is considered a landmark event in the energy sector. Out of the nearly 100,000 filling stations countrywide, more than half are owned by two State-owned oil giants: China National Petroleum Corp, or PetroChina, the nation's largest oil and gas producer by annual output, and China Petroleum and Chemical Corp, or Sinopec, the world's largest refiner.
In contrast, only around 3,100 or 3.1 percent are currently operated by foreign companies, mostly joint ventures with Sinopec or PetroChina. The jointly owned gas stations sell products from their Chinese partners or their joint venture refineries.
Until now, a foreign entity was allowed to own only 30 fuel stations outright. The rest needed to be joint ventures with local partners as the majority shareholders. This rule applied even when foreign players wanted to sell different kinds and brands of oil and gasoline from multiple vendors.
But all that is going to change now as the government has scrapped the related rule. So, foreign players' share is expected to increase rapidly.
Observers see expected investments spawning purchases of land, erection of modern filling stations and creation of new jobs. Related figures and financial details are yet to emerge, but there is consensus this is going to be big deal.
International oil giants like Shell are more confident of entering China's oil retail market. They will likely operate more wholly owned stations across the country, said Li Li, energy research director at ICIS China, a provider of analyses and research into China's energy market.
Li said with the restriction removed, foreign companies will see more options for oil and gas supplies and a higher market share by providing high-end products and value-added services.
"Foreign operators might still need to rely on local refineries initially and their pricing would depend on the form of their cooperation with local companies," she said.
"The choice of local partners, collaborative model and a reliable source of petroleum products are also critical to their success in the market."
Not surprisingly, China has vowed to further lower the total number of restrictions on foreign investment to 48 from 63, especially in the services sector, infrastructure, railway passenger transportation, international shipping, grain purchases and wholesale businesses.
"We believe the lifting of restrictions is definitely good news for the international oil and gas companies, a positive move that brings competition into the industry," said Min Na, who analyzes the oil and gas industry for Bloomberg New Energy Finance.
"With more competition, companies will focus more on their quality of services and products and customers can eventually also benefit from it."
To enter China's fuel retail sector, multinationals are expected to take any of the routes from joint venture, wholly owned new venture or dealership that is appropriate for the local market conditions, Min said.
The prospects of future growth associated with the lifting of curbs have enthusedoil firms. For instance, Royal Dutch Shell told China Daily any level playing field would create more space and opportunities for international retailers in China, and customers will have more options to choose from.
"We will continue to employ joint venture, wholly foreign-owned enterprise or dealership models, whichever are most competitive and best serve our customers," the company said.
Shell currently operates more than 1,300 gas stations in nine provinces and three municipalities in China. Its footprint covers Beijing, Tianjin, Shandong, Hebei, Shanxi, Shaanxi, Sichuan, Guangdong, Zhejiang and Henan, as well as the Hong Kong Special Administrative Region and the Macao Special Administrative Region.
"We have proved that we can effectively serve our customers together with our joint venture partners, as well as through our own operations. We will be happy to use any business models available to us that will help us reach even more customers in the future," it said.
According to Chen Cuiwei, Shell's president of retail business in China, despite the current fierce competition in China's gas station sector, there is much room for growth compared with the scene in developed countries.
Based on Shell's positive brand reputation in China and the increasing vehicle ownership in the country, the timing is good for expanding the scale of its play in the gas station sector, she said.
According to ICIS, close to half of China's 100,000 gas stations are privately owned. The majority, especially in the northern market, have seen their sales and profits decline due to higher labor cost and stiff competition.
Against this backdrop, foreign brands with their premium tags and experience in management, and backed by deep pockets, have a positive outlook for the country's petroleum retail market. The key to success, they believe, is the right cooperative model.
Hanna Hofer, president of BP China Retail, said the company believes that a more open market will attract more investment and, ultimately, benefit consumers with better quality and more choices.
BP announced earlier this year that it will partner with Shandong Dongming to add 500 filling stations in Shandong, Henan and Hebei to its fuel retail portfolio.
Bloomberg New Energy Finance believed more cooperation between foreign companies and teapot refineries could be created under the new policy. "We'd expect more of this kind in the future," said Min.
According to Min, the opening up of the gas station sector would also bring more competition to the doorstep of State-owned oil companies. The latter have been dominating China's fuel retail, but once the market opens up, their profit margins may fall in the short term.
As of now, however, sales and profits of PetroChina and Sinopec dwarf those of private and foreign competitors, said Li Yan, an analyst from Oilchem, an online tracker of the energy and petrochemicals industries.
By the end of this year, PetroChina will likely have 22,000 gas stations nationwide, or 22 percent of the total, while Sinopec will own 31,000, accounting for 31 percent.
"These companies are vertically integrated, and are experienced in operating in this industry. They still have their competitive advantage in the China market," she said.
"In addition, as the world's largest auto market, demand in China is still growing, and different companies could all benefit from a bigger pie."
Agreed Li Li, saying while many oil giants, including BP, Shell, ExxonMobil, Total, Chevron and Rosneft, have been keen to enter China's petroleum retail market in the past decade, the entry threshold is much higher now compared with years ago. That's because China's gas stations have seen their valuations soar in recent years.
While the anticipated developments may present more opportunities than challenges for foreign oil giants, instant expansion right from the word go is easier said than done, considering that the existing players have established themselves for many years, securing a good geographical layout, she said.
Min believed with more market players, there could be more innovation in the industry. "Some of the international oil companies have acquired (electric vehicle) charging business. Shell's has purchased Dutch-based New-Motion, the owner of one of Europe's largest electric vehicle charging networks. BP has acquired UK's largest electric vehicle charging company, Chargemaster, which operates over 6,500 charging points across the country.
"Considering that China is the world's largest EV (electric vehicle) market, this combination of factors could bring more innovative business models to the industry in the long term."
As electric vehicle sales are expected to boom around 2025, all gas stations are expected to see a slump in sales around that time. Multinationals eager to enter China's fuel retail business may want to factor this aspect in, she said.
Imagine, they said, an old banger morphing into a glamorous, irresistible, state-of-the-art mean machine, and it would help you to visualize plain-Jane filling stations transforming into shiny, gleaming modern metal-and-glass structures.
They would offer not just eye-pleasing design and architecture but an array of enhanced products and value-added services - stuff that could potentially alter lifestyles, transform the industry and support economic growth.
China's 100,000-station gasolene retail sector is set to transition to the digital age on the back of deepening reform and opening-up, industry insiders said.
Conceivably, cars will run on better-grade, additive-enriched, mileage-boosting, if pricier, gasolene. Instead of a dreary ambience and uninspiring staff, filling stations will sport bright looks and might unleash shapely and energetic vehicle cleaners with foam sprayers and sponge mops the moment motorists roll into their premises.
What's more, there will be convenience stores, fast-food kiosks, shopping arcades, even mini cinemas. Oh, there will be fuel too. And the time and distance between any two fuel outlets could shrink substantially as they mushroom all over.
Details are still hush-hush, but what insiders see coming are entry of multinationals, mega investments and stiffer competition. As a larger number of players vie for the same pie, consumers may benefit in terms of services getting cheaper and better. All this will likely compel State-owned oil behemoths to shape up or ship out.
Global energy giants Royal Dutch Shell plc and BP are expected to invest more in gas stations in China as the government lifted restrictions on foreign investments in the sector on June 28.
The removal of policy barriers is part of the National Development and Reform Commission and the Ministry of Commerce's new "negative list" that eased restrictions in various sectors including banking, automotive, commodities and agriculture.
Opening up of the fuel retail sector is considered a landmark event in the energy sector. Out of the nearly 100,000 filling stations countrywide, more than half are owned by two State-owned oil giants: China National Petroleum Corp, or PetroChina, the nation's largest oil and gas producer by annual output, and China Petroleum and Chemical Corp, or Sinopec, the world's largest refiner.
In contrast, only around 3,100 or 3.1 percent are currently operated by foreign companies, mostly joint ventures with Sinopec or PetroChina. The jointly owned gas stations sell products from their Chinese partners or their joint venture refineries.
Until now, a foreign entity was allowed to own only 30 fuel stations outright. The rest needed to be joint ventures with local partners as the majority shareholders. This rule applied even when foreign players wanted to sell different kinds and brands of oil and gasoline from multiple vendors.
But all that is going to change now as the government has scrapped the related rule. So, foreign players' share is expected to increase rapidly.
Observers see expected investments spawning purchases of land, erection of modern filling stations and creation of new jobs. Related figures and financial details are yet to emerge, but there is consensus this is going to be big deal.
International oil giants like Shell are more confident of entering China's oil retail market. They will likely operate more wholly owned stations across the country, said Li Li, energy research director at ICIS China, a provider of analyses and research into China's energy market.
Li said with the restriction removed, foreign companies will see more options for oil and gas supplies and a higher market share by providing high-end products and value-added services.
"Foreign operators might still need to rely on local refineries initially and their pricing would depend on the form of their cooperation with local companies," she said.
"The choice of local partners, collaborative model and a reliable source of petroleum products are also critical to their success in the market."
Not surprisingly, China has vowed to further lower the total number of restrictions on foreign investment to 48 from 63, especially in the services sector, infrastructure, railway passenger transportation, international shipping, grain purchases and wholesale businesses.
"We believe the lifting of restrictions is definitely good news for the international oil and gas companies, a positive move that brings competition into the industry," said Min Na, who analyzes the oil and gas industry for Bloomberg New Energy Finance.
"With more competition, companies will focus more on their quality of services and products and customers can eventually also benefit from it."
To enter China's fuel retail sector, multinationals are expected to take any of the routes from joint venture, wholly owned new venture or dealership that is appropriate for the local market conditions, Min said.
The prospects of future growth associated with the lifting of curbs have enthusedoil firms. For instance, Royal Dutch Shell told China Daily any level playing field would create more space and opportunities for international retailers in China, and customers will have more options to choose from.
"We will continue to employ joint venture, wholly foreign-owned enterprise or dealership models, whichever are most competitive and best serve our customers," the company said.
Shell currently operates more than 1,300 gas stations in nine provinces and three municipalities in China. Its footprint covers Beijing, Tianjin, Shandong, Hebei, Shanxi, Shaanxi, Sichuan, Guangdong, Zhejiang and Henan, as well as the Hong Kong Special Administrative Region and the Macao Special Administrative Region.
"We have proved that we can effectively serve our customers together with our joint venture partners, as well as through our own operations. We will be happy to use any business models available to us that will help us reach even more customers in the future," it said.
According to Chen Cuiwei, Shell's president of retail business in China, despite the current fierce competition in China's gas station sector, there is much room for growth compared with the scene in developed countries.
Based on Shell's positive brand reputation in China and the increasing vehicle ownership in the country, the timing is good for expanding the scale of its play in the gas station sector, she said.
According to ICIS, close to half of China's 100,000 gas stations are privately owned. The majority, especially in the northern market, have seen their sales and profits decline due to higher labor cost and stiff competition.
Against this backdrop, foreign brands with their premium tags and experience in management, and backed by deep pockets, have a positive outlook for the country's petroleum retail market. The key to success, they believe, is the right cooperative model.
Hanna Hofer, president of BP China Retail, said the company believes that a more open market will attract more investment and, ultimately, benefit consumers with better quality and more choices.
BP announced earlier this year that it will partner with Shandong Dongming to add 500 filling stations in Shandong, Henan and Hebei to its fuel retail portfolio.
Bloomberg New Energy Finance believed more cooperation between foreign companies and teapot refineries could be created under the new policy. "We'd expect more of this kind in the future," said Min.
According to Min, the opening up of the gas station sector would also bring more competition to the doorstep of State-owned oil companies. The latter have been dominating China's fuel retail, but once the market opens up, their profit margins may fall in the short term.
As of now, however, sales and profits of PetroChina and Sinopec dwarf those of private and foreign competitors, said Li Yan, an analyst from Oilchem, an online tracker of the energy and petrochemicals industries.
By the end of this year, PetroChina will likely have 22,000 gas stations nationwide, or 22 percent of the total, while Sinopec will own 31,000, accounting for 31 percent.
"These companies are vertically integrated, and are experienced in operating in this industry. They still have their competitive advantage in the China market," she said.
"In addition, as the world's largest auto market, demand in China is still growing, and different companies could all benefit from a bigger pie."
Agreed Li Li, saying while many oil giants, including BP, Shell, ExxonMobil, Total, Chevron and Rosneft, have been keen to enter China's petroleum retail market in the past decade, the entry threshold is much higher now compared with years ago. That's because China's gas stations have seen their valuations soar in recent years.
While the anticipated developments may present more opportunities than challenges for foreign oil giants, instant expansion right from the word go is easier said than done, considering that the existing players have established themselves for many years, securing a good geographical layout, she said.
Min believed with more market players, there could be more innovation in the industry. "Some of the international oil companies have acquired (electric vehicle) charging business. Shell's has purchased Dutch-based New-Motion, the owner of one of Europe's largest electric vehicle charging networks. BP has acquired UK's largest electric vehicle charging company, Chargemaster, which operates over 6,500 charging points across the country.
"Considering that China is the world's largest EV (electric vehicle) market, this combination of factors could bring more innovative business models to the industry in the long term."
As electric vehicle sales are expected to boom around 2025, all gas stations are expected to see a slump in sales around that time. Multinationals eager to enter China's fuel retail business may want to factor this aspect in, she said.
